Mortgage & Real Estate Tips and News "Better Informed & Educated Moving Forward"

Some new data released this week by Zillow is revealing that the mortgage banks and their REO Departments  are finally beginning to "get it"

Zillow, is the Seattle-based website that started out as a place to research house values and morphed into a real estate marketplace. They've recently published numbers showing that short sales now constitute 10 percent of the real estate market in some locations.

Short sales are those in which the mortgage lender agrees to take less than the actual payoff of the mortgage in order to facilitate the sale of a house when the owners are in financial trouble.  Historically lenders have been very reluctant to negotiate short sales because of a deep conviction that they serve to lower property values, set a bad precedent for the banking industry. But the fact of the matter is, good Ol' Fashioned Greed mixed with Ignorance!  Recently that stubborn ignorance has begun to wane, and it's about time!

Even as recently as 6 to 12 months ago lenders were not agreeing to short sales unless the owner had a firm offer to purchase and provided extensive documentation of his inability to pay the residual mortgage balance.  This was one main reason that thousands of homeowners who owed far more to the bank than their homes were worth simply walked away.

Zillow also found that this number varied by market. Lincoln, Nebraska topped the list with 14 percent of 2008 sales appearing to be short sales.  Three areas in California - San Jose, Santa Cruz, and Santa Rosa also ranked high in the highest incidence of these sales - near 12 percent while in Albany and Poughkeepsie, New York short sales represented 0.1 and 0.8 percent respectively.      

Ms. Curnutte expresses curiosity about the regional nature of the figures.  She comments that, while Albany and Poughkeepsie markets are fairly stable, some California areas which have been hit hard by the housing collapse also had low rates of short sales.  She mentions specifically that in Madera and El Centro California where home prices are down 30 and 23 percent respectively, short sales represented less than 4 percent of total sales.

We think that the short sales are probably as much a function of the pragmatism, flexibility, and/or location of the lenders as of the real estate market itself.

A local lender can see what is actually happening at ground level and will certainly have more flexibility to cut deals than the big banks or mega-servicers.  Some lenders employ absolute inflexibility as a corporate policy, others are so overloaded it is difficult for them to respond effectively, and then there are those which have been much faster to adapt workout procedures to respond to the current mess.  Even a big lender/servicer may have very different rates of workouts, short sales, and completed foreclosures in an office serving a troubled area in California as in another office servicing a distressed part of Florida.  This may reflect the attitudes of managers, tolerance of bureaucracy, even the work ethic of the lender's employees.

It would be interesting to know if there are predominant lenders or servicers in those parts of the country which Zillow has identified as having exceptionally high or low rates of short sales.  It would be even more interesting - and this might be important enough for public policy to warrant some sort of  further research or investigation into the disparities from bank to bank and region to region.