Well, we already knew that. But some interesting numbers were published yesterday by the HousingWire, showing that short sales are the best option to cut losses - not only for distressed homeowners, but also for their lenders.
It has been clear for a few years now that short sales are the best option for many underwater homeowners, and we have written about the growth in short sales. In theory, loan modifications will allow homeowners to keep their homes. In reality, however, most loan-mods end in failure. They are either tied up for so long in paperwork that they never become permanent, or the new payments are so high (sometimes even higher than the original payment!) that many homeowners redefault within 12 months of negotiating their loan-mod.
Short sales provide a homeowner permanent way out of a home mortgage that has become unaffordable. What has changed in the last few years, though, is that we used to have to work hard to get a lender to agree to a short sale. However, in the last year or so, lenders and loan servicers have started to realize that short sales are often the best way for them to cut their losses too! In fact, many of the major lenders have actually become proactive about suggesting short sales to their delinquent borrowers, even offering financial incentives to homeowners who complete a short sale.
Yesterday’s report puts some hard numbers to the stunning growth of short sales:
- Two years ago, short sales accounted for 8% of distressed property sales. That number has grown by over three times: today, 25% of distressed property sales are short sales.
- As of the middle of this year, the average time it took to complete an REO property sale was 17 months, while for a short sale it was only 12 months. (By the way, our track record of short sale completion here at Seattle Short Sales, Inc., is much quicker - most of our short sales are approved within 1 to 3 months of submission).
- As of the middle of this year, servicers’ losses on REO sales average 70%, whereas for short sales they average less than 60%.
The HousingWire report also mentions the long-term advantages for homeowners who avoid foreclosure by completing a short sale. Borrowers’ FICO credit score can drop by as much as 400 points following foreclosure, whereas a short sale will typically cost them only 50 to 200 points. And borrowers who complete a short sale may be eligible for a new mortgage in one to two years, whereas those who have been foreclosed upon may have to wait five to seven years.
Additionally, at Seattle Short Sales, Inc, we have a strong track record of negotiating a waiver on the deficiency balance for our homeowners: this means that they are cleared of ever having to pay back the shortfall on their mortgage repayment following the short sale. Currently, well over three quarters of the short sales that we negotiate for our clients are coming with full deficiency waivers.
If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/
If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/
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