By John Gittelsohn - Apr 17, 2012
The number of U.S. home short sales surpassed foreclosure deals for the first time as banks became more agreeable to selling houses for less than the amount owed on their mortgages, according to Lender Processing Services Inc. (LPS) Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, data compiled by the Jacksonville, Florida-based company show. A year earlier, 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures. A for sale sign is displayed in front of a bank-owned home in West Palm Beach, Florida. Photographer: Mark Elias/Bloomberg April 17 (Bloomberg) -- U.S. housing starts in March dropped 5.8 percent to a 654,000 annual rate, less than the lowest estimate of economists surveyed by Bloomberg News and the least since October, Commerce Department figures showed today in Washington. Michael McKee and Betty Liu report on Bloomberg Television's "InsideTrack." (Source: Bloomberg) “It’s a fairly recent phenomenon that short sales have been increasing,” Jonathon Weiner, a vice president in the applied analytics division of Lender Processing Services, said in a telephone interview. “Short sales should be the dominant way of disposing of assets” in distress, he said. Lenders are catching up to short sales after being slow to provide the staffing and incentives necessary to complete the deals, Weiner said. The transactions typically fetch a higher price for banks than sales of homes that have gone through foreclosure. In January, foreclosed homes sold for an average of 29 percent less than comparable non-distressed properties, compared with a 23 percent discount for short sales, according to Lender Processing Services. The gap has narrowed as short sales become more common, Weiner said. The growing percentage of short sales, which don’t require going through the drawn-out foreclosure process, is a sign that the U.S. is making progress in working through its inventory of distressed properties, Weiner said. The increase in short sales also may help values find a floor quicker. “Our baseline scenario is that home prices will hit a bottom at the end of this year,” he said. The Federal Housing Finance Agency ordered loan servicers to respond to all short-sale offers within 30 days, and approve or reject them within 60 days, in an effort to expedite a process that can take months longer than conventional home sales, the agency said in a statement today. The FHFA, which oversees mortgage companies Fannie Mae and Freddie Mac, wants to improve the short-sale process “to prevent foreclosure, keep homes occupied and help maintain stable communities,” Edward J. DeMarco, the agency’s acting director, said in the statement. Freddie Mac and Fannie Mae completed 125,456 short sales last year, the most recent period for which figures are available. Banks including Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) last year began giving cash inducements as high as $35,000 to selected homeowners who agreed to a short sale as a way of speeding up the process. Bank of America Corp. paid $19.9 million in the first two months of this year for 22,534 homeowners to relocate after short sales and deeds in lieu of foreclosure, when borrowers agree to return the property deed in exchange for debt forgiveness, the Charlotte, North Carolina-based company said March 16. Its short sales rose 31 percent in January and February from a year earlier. Banks have struggled to reduce losses from delinquent mortgages. Almost 4.4 percent of homes with loans had received a notice of foreclosure sale at the end of 2011, the 11th consecutive quarter the rate has been higher than 4 percent, according to the Mortgage Bankers Association. Foreclosure filings, including notices of defaults and bank repossessions, fell 16 percent in the first quarter from a year earlier after lenders under legal scrutiny slowed actions against delinquent homeowners, RealtyTrac Inc. reported April 12. Lender Processing Services, a 2008 spinoff from title- insurance company Fidelity National Financial Inc. (FNF), counts short sales by tallying mortgage and property transfer documents filed with county recorders, Weiner said. Other reports haven’t shown the same magnitude of short- sale growth. The National Association of Realtors reported that 13 percent of transactions were short sales and 22 percent were foreclosures in January. In February, short sales increased to 14 percent and foreclosure-related transactions declined to 20 percent, the group said March 21. The Realtors collect their data from transactions on the Multiple Listing Service, a database of homes on the market, and a survey of about 3,000 members, said Walter Molony, a spokesman for the association. “The February data is showing a bit of an uptick,” he said in an e-mail from Washington. “We’re hearing the process is going a bit more smoothly now, so that comes as no surprise.” The U.S. Department of Housing and Urban Development reported a preliminary 19,600 short sales in January, compared with the Lender Processing Services tally of 48,721. An April 6 HUD report showed that the number of short sales rose 4.3 percent from a year earlier as the number of real estate owned, or REO, sales -- another name for foreclosure sales -- fell 39 percent. Before agreeing to accept a loss on a short sale, lenders usually require homeowners to show evidence of hardship, such as inability to afford their mortgage payments or the need to relocate for a job, said Weiner of Lender Processing Services. Short sales outnumbered foreclosures in states with some of the largest shares of homes facing foreclosure, such as Arizona, California, Florida, Nevada and New Jersey, Lender Processing Services reported. In New Jersey, short sales have exceeded REO deals every month since June 2010. In January, short sales accounted for more than 15 percent of the 3,033 New Jersey homes sold, compared with 3.9 percent for foreclosures. It took 966 days for banks to repossess a home in New Jersey, second only to New York, according to RealtyTrac. Both states require judicial hearings for foreclosure approval. In New York, where it takes 1,056 days to repossess a home, 7.9 percent of purchases in January were short sales while 2.3 percent involved bank-owned properties. “In general, markets where larger incentives are provided usually have extended foreclosure timelines, such as Florida,” Tom Goyda, a spokesman for Wells Fargo, said in an e-mail from Ellisville, Missouri. Wells Fargo, which doesn’t disclose its short-sale totals, offers homeowners as much as $20,000 to relocate, he said.Distressed-Property Inventory
Cash Incentives
Falling Foreclosures
Showing an ‘Uptick’
California, Arizona
To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net
