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Short sales up sharply, regulators report

July 10, 2009 |  1:19 pm

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