From the NC Times:
Short sales of homes frustrate buyers, annoy lenders, and cause real estate agents to tear their hair out waiting for deals to close.
In 2010, there will be a whole lot more of them, a market research firm said.
Surveys conducted by Campbell Communications show that short-sale inventory is rising quickly, and can be expected to do so even faster in the next few years. Meanwhile the number of ordinary home sales and foreclosures will grow slowly.
A housing market swamped by a wave of subprime mortgage foreclosures that peaked in 2007 is facing billions of dollars of adjustable loans that begin to recast in 2010, according to data from Credit Suisse. As low “teaser” rates expire, mortgage payments will jump for many homeowners.
With U.S. unemployment higher than 10 percent and the economy showing few signs of improving, analysts foresee a herd of distressed properties reaching the market between 2010 and 2012. But real estate agents waiting for a stampede of foreclosures to break out may be left standing at the gate, as homeowners seek alternative ways to avoid defaults.
“When someone becomes unemployed, there’s a number of options. One is foreclosure,” said Thomas Popik, Cambell Communications’ research director. “Increasingly, a number of other options are available.”
President Barack Obama has made avoiding foreclosure a priority in his administration. As part of the American Recovery and Reconstruction Act, lenders were offered incentives to modify loans of distressed property owners.
“We have a massive government intervention going on,” said Sean O’Toole, founder and chief analyst for real estate Web site ForeclosureRadar. “We simply don’t have the political will to foreclose on these folks.”
In a short sale, borrowers get permission from their lenders to sell their property for less then they owe on a loan.
They solicit buyers and submit bids to a mortgage servicer, which in turn determines whether or not to approve the sale. If the sale is approved, the buyer can get a home at a discount, the seller avoids having a foreclosure as part of their financial record, and the bank can avoid becoming a homeowner.
“Banks are bad at owning real estate; they’re not in that business and they’re just bad at it,” said Mark Goldman, an instructor at San Diego State University.
Lenders agree with Goldman on this point. A spokeswoman for GMAC Financial Services, Jeannine Bruin, said her company prioritizes keeping borrowers in their homes, but failing that, it prefers short sales to foreclosure. JPMorgan Chase & Co. has the same policy, spokesman Gary Kishner said.
“Foreclosure costs us a lot of money,” Kishner said. “When a foreclosed house goes up for sale, we don’t know how much house is going to go for. If we can avoid that, obviously it’s better for us.”
O’Toole has a sees it differently.
“What’s pushing it forward is there’s such a lack of inventory, and you’ve got this huge Realtor force that needs something to sell,” he said. “This is one of the things that gives them something to sell.”
Short sales also suffer from being complicated deals involving multiple lenders and thus multiple bureaucracies. In the end, the deals can take nine months or longer to complete.
“You’ll have a lot of people lining up to offer short sales, but it’s tough to get the banks attention to give them a deal,” said Nathan Moeder, a real estate economist with The London Group.
And while most analysts agreed that there will be a substantial increase in short-sale inventory next year, not all think short sales will be a dominant force in the market.
“I don’t think they’ll become a stronger component of the market then REOs,” O’Toole said, referring to bank-owned foreclosed properties. “I think REOs will still be a significant quantity, but I think we’ll see a lot more growth in short sales than elsewhere.”
This is another article demonstrating the prevalence short sales have taken. The perfect storm of market conditions – increases in the unemployed; home values down, inventory high – has landed on the shores. Short Sales aren’t ideal – but they do provide a solution to help mitigate the situation and “take the edge off”. We all know lenders don’t want to own homes, but they also don’t want to lose their shirts. Short Sale professionals like you make the case to loss mitigators and find that elusive middle ground which is truly a win-win situation for both the homeowner and the lender.
It’s going to be quite a ride over the next few years! What are your thoughts? Feel free to chime in in the comments!
