Short sales up sharply, regulators report

As foreclosure moratoriums provided temporary respites to troubled borrowers earlier this year, two other kinds of home forfeiture -- short sales and deed-in-lieu-of-foreclosure actions -- rose sharply.

In a mortgage study released last week, federal financial regulators reported a 176% jump in short sales and deed-in-lieu proceedings from the first quarter of 2008 to the first quarter this year.  

Short sales and deed-in-lieu actions require borrowers to forfeit their homes to eradicate their mortgage debts, generally for less than the full amount due. Selling a home or handing it back to the bank in this manner does less damage to a borrower's credit rating than a foreclosure, and can be less of a hassle for the lender.

Year-over-year first-quarter short sales jumped from 5,523 to 17,036, according to the report from the Comptroller of the Currency and Office of Thrift Supervision, the U.S. Treasury Department agencies that oversee banks and S&Ls. Quarterly deed-in-lieu-of-foreclosure actions edged up from 1,065 to 1,158.

Completed foreclosures still far outnumbered the alternate forfeitures. They totaled 78,936, up from 76,548 in the year-earlier quarter but far below the high of 126,266 in the third quarter last year. As noted here recently, foreclosure statistics are expected to spike again soon as federal, state, local and lender-imposed moratoriums expire.

The regulators said their report covered 64% of current home loans in the United States. They noted that most of the short sales involved borrowers with prime loans, not subprime or alt-A mortgages. 

The news release here describes other findings by the regulators and provides a link to the full 42-page report.

-- E. Scott Reckard

Short sales effect on neighborhoods

At the real estate news site Inman News, Tara-Nicholle Nelson writes about short sales and posits that encouraging some short sales may actually slow the loss in value of neighboring homes:

If you think these short sales are devastating the value of your home, imagine what would happen if every short sale on your block were, instead, a foreclosure. You would have a home that stood vacant for months or longer, providing a nice cozy target for vandals, squatters and other criminals. Your city and state would be out property taxes for that time, as the banks who own these places often don't settle the property taxes until they resell. And, in the end, the place would be sold for probably less than the short-sale price, depressing your home's value even further.

Click here for the whole column on short sales.

-- Sharon Bernstein

I am shocked!

Pasadena-area broker Doug Willis posted a disturbing report from the field on his blog last week. He says an agent representing someone short-selling a house told him the place could be his if Willis' client would throw in a sweetener: $15,000 cash, under the table.

As Willis points out in the item titled "Would You Mind Repeating That?"  such a payment would defraud the lender holding the note on the property  and would also constitute fraud and tax evasion by not disclosing the terms of the sale.

Willis said he left a phone message for the brokerage representing the seller, but when I spoke to him late Friday, he'd not heard back.

As real estate activity picks up this spring, perhaps we'll see more shady activity as well.

Anybody else have some recent shenanigans to share?

-- Peter Y. Hong

Can shorts sale be more commonplace?

Short selling has proved to be a lengthy and frustrating process with no guarantee of success, but now some new efforts are underway that may make them more workable. From "Fannie Mae tests 'short sale' program" from the Associated Press, at forbes.com and elsewhere:

A Fannie Mae executive said Friday the mortgage giant is testing a new program aimed at reducing the number of foreclosures by pre-approving sales where homeowners sell houses for less than the amount owed on them.

Kevin Brungardt, vice president of servicing management at Fannie Mae, said the company will determine an acceptable listing price for a so-called short sale even before a buyer has been found. ...

The company began testing the program in Phoenix and Orlando, Fla., at the end of December and said it will run for three months. About 400 homes in the two markets qualify for the pilot program. Fannie will evaluate the program's effectiveness with real estate agents and its pilot partner and decide whether to broaden the program. ...

Fannie Mae wants to make the short sale as fast and easy as possible so distressed homeowners can avoid foreclosure. Real estate agents nationwide have complained about how long it takes for a lender to sign off on a short sale, often derailing the deal and leading a homeowner into foreclosure.

Meanwhile, Coldwell Banker Residential Brokerage on Thursday launched a program in California and Arizona to help streamline the short sale process for homeowners, sales associates and lenders called "Short Sale Trusted Advisor."

Other than lenders being stubborn and not wanting to budge, I can't understand why more of these sales aren't happening. It seems like it would still be cheaper for them than foreclosure.

--Lauren Beale

Thoughts? Comments?

Photo: A pedestrian walks past the headquarters of Fannie Mae, the largest source of home-loan money in the U.S., in Washington, D.C. Credit: Jay Mallin / Bloomberg News

In a short sale, it's all about what the lender will net

Getting a short sale approved by a lender can be a long, arduous process -- one that the would-be buyer sometimes decides to bail out on along the way. I heard from several frustrated homeowners this spring whose lenders wouldn't forgive the remainder of what was owed and who ended up in foreclosure. For those contemplating selling for less than they owe, some things to consider from Sunday's L.A. Times story, "How to unload your home through a short sale":

All lenders have a bottom-line number they have to meet, and knowing that net is essential because it will determine how to price your property.

For FHA loans ... the required net is 82% of current market value. Not what you owe, but the current value of the property. For VA loans, the required yield is 88% of the present value. On conventional loans, the needed net can range from 78% to 85%, depending on location.

The article continues:

To get out from an underwater mortgage without any cash out of pocket, remember to "gross up" your price to include your agent's sales commission and whatever closing costs you may be charged as the seller.

Not only has market value dropped since spring, but those net figures are looking lower to me. A Times story from June reported banks netting about 90% of the current market value on short sales.

Lenders who were turning their noses up at short sales earlier this year might be wishing they could turn the clock back at this point.

--Lauren Beale

Thoughts? Comments?

Photo: David Zalubowski / Associated Press