Short sales, a little understood part of the mortgage lending business, are receiving approvals from mortgage companies in increasingly fewer numbers as banks and mortgage lenders find themselves in growing financial jeopardy.
Loan modifications and short sales are at the heart of the nation’s financial crisis since Mortgage Swap Securities traded on Wall Street secured mortgage debt. The “mortgage swaps” as investors’ call them were traded at values of $40 for every $1 invested. They are among the main culprits of the nation’s financial crisis. Four major investment banks on Wall Street, including Bear Stearns and Lehman Brothers suffered financial losses due to the swaps at levels that destroyed their businesses.
Falling home values have led many homeowners to attempt to sell their homes for less than what is owed on them. Short sales of property are the sales of real estate approved by mortgage holders for less than what is owed on mortgages. To successfully close a transaction on real estate at a lower price than what is owed, the mortgage holder has to agree to cut the amount of the mortgage.
An estimated eight to twelve percent of all Short Sales nationally requested by homeowners are ever approved, despite lengthy waiting periods of up to six months to receive an answer, according to a Housing Predictor study. The research indicates a growing trend by lenders refusing to approve the sales as a result of suffering larger financial losses without foreclosing on the property.
“Lenders actually make more on the homes when they are foreclosed,” said Scottsdale, Arizona real estate Broker James Wexler. “More times than not they get paid more by insurance than what they would if the home was sold through a short sale.”
Short sales are playing a growing role in the nation’s foreclosure epidemic as foreclosures near 3.2-million units nationwide since Wall Street investors stopped buying mortgage securities in mass. The securities acted as re-insurance of the mortgages. There are few investors in the marketplace willing to take on the risk in today’s increasingly volatile real estate and stock markets.
Wexler, who specializes in the Luxury home market in Scottsdale, has come up with Seven Good Reasons not to get involved with Short Sales:
- 1. Average time to get acceptance (or more likely a denial) from a lender is more than 75 days. Some agents say longer.
- 2. There is no guarantee the offer will get accepted at or near that price because the majority of Realtors list homes at random arbitrary prices that they think or hope the banks will accept.
- 3. Estimates as high as 80%, some say 90% of offers on short sales do not consummate in a closed escrow.
- 4. Three month waiting periods prevent buyers from looking for other houses which often result in opportunities lost.
- 5. REO /lender owned listings are now priced as well or better than short sales.
- 6. Lenders are more inclined to reject offers that do not have financing with large down payments. Many FHA offers are rejected due to high decline ratios and lengthy underwriting times.
- 7. Banks are just not cooperative.