A loss mitigation technique barely on the radar screen five years ago now is holding out hope that servicers can start moving their logjams of delinquent mortgages down the river and start resuming more normal operations.
Short sales have zoomed into prominence recently. They work by derailing foreclosures and lessening the costs of resolution, since short sales tend to bring in more money than real estate owned sales do. Consumers can skip the black mark against their credit that a foreclosure would entail. Played right, a win-win for both servicer and consumer.
We’ve just reported some numbers on the use of short sales through the government-run HAFA program (Home Affordable Foreclosure Alternatives). Nearly 40,000 have been done since program inception in 2010, and another 40,000 may be done within the space of a year.
Freddie Mac and Fannie Mae are active users of the short sale method. Fannie did 80,000 short sales in 2011 and Freddie 45,500, we have reported.
Private banks are making good use of this technique as well. We reported Bank of America made 107,000 short sales in 2011, and plans to double that this year. Vendor RealtyTrac thinks 2012 will be the record year for short sales.
One industry expert told NMN’s Brian Collins that lenders are seeing their recoveries increase by $50,000 and more by using short sales instead of REO sales. That becomes real money if you do that enough times!
Lenders and servicers operating under the weight of borrower defaults exacerbated by the foreclosure slowdown brought on by the robo-signing scandal seem to have found an effective technique to minimize disruption to borrowers and losses to themselves.
Any program that facilitates loan resolutions in the hundreds of thousands each year stands to make a dent in the foreclosure logjam. We won’t see a normal servicing market, and normal home value pricing, until this happens.
Of course, short sales are just one loss mit technique. Others include loan modifications, principal forgiveness, borrower counseling, doorknocking programs and many others.
This year for the fourth time we are sponsoring a Best Practices in Loss Mitigation conference in Dallas, on July 19 and 20. Industry experts will go through the list and tell what is working, and why (also what is not working, and why!). Loss mit has never been more important.
