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Monday, February 01, 2010

"Short Sales Soar"

by Calculated Risk on 2/01/2010 10:58:00 PM

From the Las Vegas Sun: Short sales soar while foreclosure sales slacken (ht sportsfan)

Short sales averaged about 7 percent to 8 percent of total [Las Vegas] existing-home closings in early 2009, but averaged 22 percent of the market by the end of the year and in early January ...

“We have seen a decrease in foreclosure activity in Las Vegas, which was puzzling to us,” said Daren Bloomquist, marketing manager for California-based RealtyTrac, which monitors foreclosures in Nevada. “Maybe Las Vegas has become somewhat of a test ground for streamlining short sales. It sounds like it could have an impact in Las Vegas.”
Dennis Smith, president of Home Builders Research, said short sales will be the “story of the year” because of the effect they will have on the housing market.
John Mechem, a spokesman for the Mortgage Bankers Association, said what is happening in Las Vegas is occurring across the country. It is costly for lenders to go through the legal process of foreclosing, and he added that homes can be damaged over time. The return is better on short sale, he said.
As I've noted, I think short sales will be the story of 2010. It is probably the best solution for many homeowners and lenders.

As the story mentions, Treasury has started pushing Short Sale and Deed-in-Lieu of Foreclosure as an alternative to modifications.
The Treasury Department is offering incentives on short sales by providing a $2,500 subsidy, $1,000 to the servicer and $1,500 to the seller for moving expenses. In addition, investors can get $1,000 by allowing subordinate lenders to get $3,000 in proceeds from the sale. The program is effective April 5, but servicers can implement it earlier.
This is better than "walking away" for the lender - the losses are less than for a foreclosure. And this is better for the homeowner too because Treasury requires that "the borrower will be released from all liability for repayment of the first mortgage debt", although the borrower will still take a credit hit.