California is the short sales capital of the world. According to CoreLogic, which made a big study of the field earlier this year, more than a quarter of all short sales in the years 2008 and 2009 happened in California.
Why is that? Well, there’s plenty of badly delinquent loans in the Golden State, that’s for sure. And, prices are robust enough to make it worth a lender’s while to make a halfway decent recovery on the short sale.
Consider Michigan, for instance, where the average foreclosure sale nets just $77,000. Not much of a recovery there!
Recently I chaired SourceMedia’s Best Practices in Short Sales and REO Conference in San Diego, where a lot came out about two of the hottest niches in servicing.
Real estate owned remains another hot button item for lenders and Realtors. Consider this mind boggling stat: lenders now sell more homes than home builders! Combining with Realtors to sell homes either before a foreclosure through the short sale, or afterwards via REO, an important new business combination has been established.
Here are a few more stats on short sales, from an article in Mortgage Servicing News: according to servicing figures complied by the Office of the Comptroller of the Currency and Office of Thrift Supervision, in the second quarter, short sales by the nation’s 12 largest depository servicers totaled nearly 57,000, a 42% jump from the first quarter, and a 127% gain from a year ago.
In some hard-hit markets, short sale properties outnumber foreclosure or REO sales by a 4-to-1 ratio.
In addition, the administration has designed its own short sales program, the Home Affordable Foreclosure Alternative program. HAFA requires the banks to respond to a buyer’s offer within 10 days. It went into effect April 5 (for non-GSE loans) and has increased the use of short sales.
In August, Fannie Mae and Freddie Mac started using the HAFA program. Short sales involving GSE loans totaled nearly 29,400 in the second quarter, way up from the year before.
In Las Vegas about 60% of properties listed for sale are short sales and only 17% are bank-owned properties or REOs.
In Phoenix, 40% of the properties listed for sale are short sales and only 17% are REOs.
REO sales, meanwhile, are seeing unprecedented volume from a collateral pool of millions of overdue borrowers.
Recently, though, there has been a big complication in the default servicing arena. That’s the robo-signing scandal, in which big servicers have been caught not doing their due diligence. Though mega-servicers would like nothing better than to declare the problem fixed, hearings were held on this issue in both the House and the Senate. In addition, all 50 state attorneys general, in a rare example of unanimity, have banded together to require servicers to demonstrate they are following their obligations.
There are few things scarier to business than high-profile Congressional hearings and angry committee chairmen and women. And the state AGs generally wind up extracting settlements of hundreds of millions of dollars when they get their dander up about something.
What will the robo-signing mess mean for short sales and REO? It may be a little too soon to say, but one guess is that it will slow down REO sales by delaying foreclosures. And, that could mean a boost to short sales, giving lenders an even bigger incentive to sell the real estate before it goes into the foreclosure logjam.
