The "Loan Xperts" Blog

Short Sales occur when the mortgage debt owed exceeds current market value of the home. In most cases Short Sales help mitigate losses for banks, are a source of much needed cash, and eliminate non performing loans from bank files. However, some major banks, including Bank of America, Chase, Countrywide, Wachovia, and Wells Fargo, to name a few are cutting or denying fees and commissions to Realtors and loss mitigation service companies in the face of recently published Fannie Mae and Freddie Mac guidelines.

Thus, banks are guaranteeing themselves continued losses as they discourage short sale activity, and help accelerate foreclosures into auctions. By denying fees as little as 3%, banks risk and may lose 30 to 60% of the value of a property. In a declining market, the next offer may not come for months, and may be significantly lower then the original offer. Very often, the property goes into foreclosure auction, which may take as long as 7 to 10 months, especially in judicial states such as Florida. This same property is likely to be sold for much less than the Short Sale offer would have provided, and it is estimated that the average foreclosure will cost the bank an additional $50,000 to $70,000 in fees. 

There is almost no way that the banks can avert the huge losses already reported, as 1 million homes (worth $200 billion?), have gone into foreclosure in just the last four months, accelerating each month from May through August. In the face of these losses, banks are focusing on saving small Realtor and loss mitigation fees to cut losses, and sustaining huge losses as auction sales soar.  Some banks may take as long as 90 to 150 days to work their way through their own red tape before reaching a decision on a short sale offer. This  indecision again helps guarantee losses for banks as properties deteriorate, buyers give up and walk, and new offers if any, are lower than the first offer the majority of the time. The current foreclosure crisis is unique to our banking industry, and solutions do not appear easily at hand.