The US Treasury Department’s Comptroller of Currency and Office of Thrift Supervision reported a 176% increase in short sales nationally from the 1Q 2008 to 1Q 2009, from 5,523 in 1Q 2008 to 17,036 in 1Q 2009. The numbers of foreclosures are still far higher than short sales and are expected to spike once again after federal and state moratoriums expire. According to the US Treasury, these numbers cover 64% of the current home loans in the United States and mainly represent prime loans.
first tuesday take: The first issue with this report is that the source of information is a federal government agency controlling banks and savings depositories. The only data available covers a mere fraction of the mortgage loan market, and that portion does not cover data specific to California. Thus, the news article has no usable information for brokers and agents about the state of California’s housing market.
Short sales comprised slightly more than 3% of housing sales in California during the 1Q 2009: nothing! Ask any agent working on short sales about his level of income from such efforts. Further, during 1Q 2009 lenders did not foreclose on any loans (prohibited as they were by federal and state mandates and expecting the TARP funds to pick up the toxic loans).
Further, lenders modified a very small fraction of loans for distressed homeowners, and those they did modify were done on terms so deleterious the arrangements are now commonly called “extend and pretend”. Most of these modifications are going bad – re-defaulting – within six months as the homeowner gets in contact with the economic reality of his upside-down financial condition. The sole cure is the cramdown, an action lenders hate as it requires competition from federal judges to see who will first cram down the loan to the property’s value.
Thus, the report sensationalizes a national statistic during a period of lender inaction on government-mandated action, and then compares it to conditions during an unrelated period – the prior year when the foreclosure rush had not even begun!
This report is just slapdash government spin attempting to “prove” the lenders are cooperating with distressed homeowners, nothing more. At best it will if read by the public tend to raise confidence in the governments recovery effort, not a bad thing if the recovery has begun.
Re: “Short sales up sharply, regulators report” by the Los Angeles Times