2012 McGeough Lamacchia Realty Study Shows Short Sales Are Better for Banks Than ForeclosuresPosted in Short Sale News | 2 Comments
McGeough Lamacchia Realty compiled data from MLS for short sale and lender owned (foreclosure) homes sold in 2010 and 2011 in five major markets: Boston, Phoenix, Tucson, Southern California (Orange, Los Angeles, Riverside, and San Bernardino Counties), and Southwest Florida (Lee, Charlotte, Collier, and Hendry Counties).
The data shows that for the past two years, selling prices for short sale homes were considerably higher than prices for lender owned homes:
As you can see, the average short sale home sold for 24% more than a lender owned home in 2011. This means the banks are losing an average of $43,000 for every foreclosure sale compared to what they would have made in a short sale. And this does not include the cost of foreclosing and additional missed payments. There were more short sales and foreclosures in 2011 than in 2010, and we expect to see this increase in 2012.
Banks take in more revenue from short sales than from foreclosures so it’s not surprising many banks are offering cash incentives to distressed homeowners to move out of homes they can no longer afford. But more needs to be done to promote short sales. In 2009, the Obama Administration introduced the Making Homes Affordable Program for struggling homeowners, which included the HAFA Program that also provides homeowners with a cash incentive to do a short sale. The program has since been modified and has been a great success, however, Fannie Mae and Freddie Mac have not adopted the most recent updates.
Fannie Mae and Freddie Mac need to do more to promote short sales and make it easier for distressed homeowners to do a short sale and avoid foreclosure. An article in HousingWire last month reported that Fannie Mae and Freddie Mac actually charge servicers for taking too long to complete the foreclosure process. Bank of America, for instance, had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011. Instead of speeding up foreclosures, Fannie and Freddie should make doing a short sale easier.
* Orange, Los Angeles, Riverside and San Bernardino Counties, CA
** Lee, Charlotte, Collier, and Hendry Counties, FL. Total sales within + or -5% margin of error; however, the average selling prices are exact.