The simple answer is…more than meets the eye. Let’s backtrack a bit. In February the Big 5 banks: Bank of America, JPMorgan Chase, Citibank, Wells Fargo and Ally Financial (formerly known as GMAC) got a slap on the wrist and a $25 Billion dip in their rather deep pockets for their part in the Robo-signing controversy.
At least $10 billion will go to principal reduction in loan modifications and $7 billion is earmarked for refinancing loans for borrowers interested in keeping their home. Up to $7 billion will go towards other assistance, which includes short sales.
What does all that mean for us? Good news actually. First of all, the banks are going to be a little slower and more cautious about foreclosing. They are experiencing the real cost of foreclosure in terms of money, time and public relations. Short sales, on the other hand, are up this past year because the banks halted much of their foreclosure operations and finally added staff to the loss mitigation departments. They have had success in closing large numbers of short sales and probably see this as a better alternative than foreclosure. Foreclosures can bite back in many ways. Add to that some of the $7 billion that will go to short sales and we are poised for a record year in short sales.
As we have discussed in an earlier newsletter, the bank, the seller and the housing market are all better off with a short sale and we have years of inventory to work through. Many sellers, agents and buyers have finally figured out what short sales are and are becoming more comfortable with them. Short sales are creeping into our dinner conversations and vernacular. Short sales are here in a big way…and growing.
How does that help the agent? The housing market gets stabilized quicker with a higher average sales price. For agents involved in short sales, this means more closings. For those agents who still don’t want to touch them, at least there are fewer foreclosures in the neighborhood.
An important point not to be overlooked is how all of this affects the homeowner. A foreclosure can be a financially and emotionally debilitating event in their lives. A short sale, by comparison, can be a difficult and frustrating process but the results are usually a speed bump instead of a crash. The homeowner being foreclosed on may NEVER enter the housing market again while the short sale recipient will probably be back…..cautiously and better prepared, but back.
With all things considered the settlement looks like good news.