Volume 15, Issue 40 For the week of October 17, 2011

Another Look at Short Sales

There is another "dramatic shift" in home sales, according to Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage which has over 700 offices under the Coldwell Banker brand. That "dramatic shift" is in bank's willingness to sell than the mortgage balance to avoid foreclosing. Finally, common sense is coming into the equation! Typically short sales sell at a discount of about 20% for home not in financial distress, in contrast to a 40% discount for bank-owned homes also known as REOs. That is of 20% more for the mortgage holder, so it is a clear financial incentive for banks to accommodate a short sale over having to process a foreclosure. HomeServices reports that the distressed sales were a mix of 60% foreclosure and 40% short sales. But that ratio has now flipped. Why Banks Should Short Sell: Following the Robo-Signing and subsequent delays in the foreclosure process, banks are facing the realities of how to dispose of these assets, which in fact become a liability to them:

- First, banks do not want to be landlords, they are in the business of lending on not acquiring real estate.

- There is increasing pressure on banks to hold and rent-out these properties so as not to flood the housing market with for sale inventory and further drive down values and selling prices.

- This is a policy that Fannie Mae and Freddie Mac are exploring for the same reasons and collectively that would place an enormous inventory of

rental homes on the market.

- This would bring another wave of income loss and uncertainty further prolonging a housing market recovery.

Short Sales Benefit All: - Mortgage lenders recover more money

- With either a short sale or foreclosure the bank stands to lose money. It makes so much more sense to negotiate the short sale with a 20% discount than to push through a foreclosure and take 40% discount in a less predictable market.

- The housing market will be less damaged - Either way the market has to absorb this inventory before it can normalize. Short sales will better stabilize market values and sales prices and transaction time.

- Short sales will benefit the lenders, the homeowners, home values, selling prices, and finally it will benefit the housing industry as a whole including real estate and lending professionals.

Short sales over foreclosures benefit the entire economy.