By Mike Colpitts
Bank assisted short sales or the lender approved selling of homes at less than what is owed on a mortgage, are projected to skyrocket in 2012 as banks and mortgage lenders come to grips with the mess the U.S. housing market has been in for five years.
Short sales are forecast to be approved on 500,000 homes by lenders during the year.
The Housing Predictor forecast has been issued after a thorough review of banks and bank servicing company programs handling of the short sale process. Short sales will remain at high levels for at least four years as troubled mortgages increase.
Computer software firms are preparing for an onslaught of business to handle the increase in short sales and back-log of foreclosures. Lender Processing Services, a real estate data gathering company says the median foreclosure timeline is now 587 days. Another real estate data gathering firm, CoreLogic says that short sales will increase 25% in 2012.
Federal regulations that went into effect earlier this year should help to propel short sales, removing obstacles involving second mortgages. Investors of second mortgages, lines of credit on homes and other revolving lines of credit will now be at least partially compensated for agreeing to short selling homes instead of forcing homeowners into foreclosure.
Secondary lien holders were eliminated from receiving proceeds from the sale of homes as a result of foreclosures the majority of the time, and most commonly refused to approve short sales as a result. The new regulation, which went into affect is part of a Congressional Act to compensate lenders through the Obama administration’s program to aid the foreclosure crisis.
Secondary lien holders will now receive at least $3,000 from the Troubled Asset and Relief program proceeds designated to aid the financial crisis. Homeowners selling their homes through short sales will also get as much as $3,000 for moving expenses and rent to move into new housing.
Short sales have been gradually increasing since the real estate collapse, and lenders recognition of the foreclosure crisis. Bankers have historically been slow to catch on to trends and make changes as a result of the marketplace.
About 160,000 short sales were conducted in 2008, some 100,000 more in 2009 and about 330,000 last year. As troubled mortgages increase in the U.S., banks and mortgage companies have slowly become more realistic about using short sales as a way to reduce their losses instead of rejecting them on a wider scale as unemployment remains high and underemployment levels grow.
Although prices vary greatly, foreclosures generally sell for about 30% less than similar homes in the same neighborhood. Homes that sell as short sales average about 20% less.