The Housing Chronicles Blog: Lenders clamping down on short sales

Monday, October 5, 2009

Lenders clamping down on short sales

In a move that strikes me as a bit counter-intuitive (at least on a macroeconomic scale), mortgage lenders are pulling back sharply on allowing short sales, which over the last year have accounted for 12% to 18% of sales activity. From a story in BusinessWeek:

Troubled homeowners may be losing a major lifeline: so-called short sales. To get bad loans off their books and spur home sales, lenders have been forgiving the difference between the outstanding mortgage balance and the purchase price. Banks were never eager participants in short sales, and now financial firms—even those that can offload losses to the government—are balking at such transactions. Some lenders are forcing the sellers to pay extra money at closing. Others want a promissory note for part of the amount due.

The situation could be a setback for the already wobbly housing recovery. A record one-third of borrowers owe more on their mortgage than their properties are worth, notes research firm First American CoreLogic. The number of underwater homeowners will only continue to rise since values are still falling. And if distressed borrowers can't negotiate short sales, more may be forced into foreclosure, further depressing prices...

Click here for full story.

No comments: