Foreclosures are Soaring While Banks are Suffering Losses from Short Sales
Foreclosures are soaring while banks are suffering losses from short sales. The story of Drew Schlosser is one of many. For two years he tried to sell his condo unit in Punta Gorda, Florida having 3 bedrooms facing a water body. Recently it went through Wells Fargo who has given the nod to accept a loss of $165,000 on the mortgage loan. Schlosser had got an offer for $155,000 on the unit but Wells Fargo, based in San Francisco took five months to agree to the short sale. Other offers had failed to materialize because of the inordinate delay. 31 year old Schlosser referred to the situation as a sort of mess. One can only sell the house in a short sale only if the buyer is patient and willing to wait with the offer standing.
But lately the lenders, mainly the banks have woken up to the advantage of short sales at this time of housing slump. Resale values are falling by more than 30% compared to the heights it reached in 2006 July. During the first six months of 2009 the number of short sales tripled to touch 40,000. But the proportion between short sales and foreclosures continue to be grim. For each short sale, 25 foreclosures were noted according to Office of Thrift Supervision and the Office of the Comptroller of the Currency.
Richard Green of Lusk Center for Real Estate (University of Southern California, Los Angeles) said, “It’s really finally dawning on banks that they’re better off with a short sale. I think banks were in denial.”
The jumbo banks like Wells Fargo, Bank of America as well as JPMorgan Chase have employed new trained personnel to develop computer system for adding speed to the process of short sales and seeing to the marketing of the same. The Obama government is putting more pressure on them to expedite offers of short sales. These lenders had come in for criticism for tacitly supporting foreclosures and procrastinating short sales. Incentives in the form of dollars are being offered to the lenders and servicers to encourage them to proceed with short sales.
Mark Zandi of Moody’s Economy said in a telephonic interview, “Judging by how slowly the modification plan is up and running, it doesn’t lend confidence this is going to jump start things. They’re saying the right things, but nothing so far suggests it’s going to work in a measurable way.”
