Foreclosure Spreads to Prime Mortgages

The subprime fiasco has now spread to all other kinds of mortgages. According to the Mortgage Bankers Association (MBA) almost half of the overall increase in the start of foreclosures during the first quarter of 2009 was due to the increase in prime, fixed-rate loans.

In the beginning of the mortgage meltdown the higher-end (homes) were less impacted but now  the financial pain threshold has reached into the prime loans market as well. Numerous celebrities and movie stars are also now losing the multi-million dollars homes due to foreclosure.

One of the many ways agents are helping clients keep their homes is by arranging a short sale. It is widely considered an excellent tool for helping lenders to minimize their losses and move buyers into homes but the process is not for the faint of heart. 

A recent Wall Street Journal article referenced a survey by Campbell Communications which noted that lenders average 4½ weeks to provide an answer to a short sale submittal; many taking over 2 months.  At the same time the response rate on an REO is 2½ weeks. In the same article, Redfin is quoted as having reported that out of 65 Short Sales represented by its agents during the first quarter, they only expect 2 to 3 to close. 

So why, according to Clayton Holdings, Inc. (an information and analytics company serving lenders), if the average loss to the lender is roughly 19% of the loan amount in a Short Sale and 40% in a foreclosure, is the Short Sale so difficult?

There are a number of elements in the approval process that impact the approval from the lender’s staffing issues to the fact that many loans have been converted to securities and there are now investors involved.  Add to that the complex nature of the documentation involved and you have the makings of a lengthy process.

According to Jacob Swodek, the author of the Certified Short-Sale Professional (CSP) course, there are a number of things you can do to avoid unnecessary delays … “Each lending organization has its own set of procedures and requirements.  It is your responsibility to extract these guidelines and fulfill them.”  One of the common mistakes agents make he says is to begin by going to the foreclosure department when it’s the loss mitigation department they want.

According to NAR and many industry experts Short Sales are increasing. Some predict the current market conditions will favor these transactions well into the Spring of 2010.  Strangely enough hundreds of thousands of real estate professionals that still do not know how to handle the nuances of the pre-foreclosure and Short Sale process.

The most cost effective and quickest way to learn about the Short Sale market is to take an online Short-Sale course. This can be done at www.cspdesignation.com