ONE avenue for escaping foreclosure may be getting a little easier to navigate: the so-called short sale, through which distressed owners sell their homes for less than the mortgage amount and are forgiven the remaining loan balance.
But mortgage executives say they are now working more cooperatively on short sales, and proposed changes in the industry could increase the number of these transactions.
“Without a doubt, lenders are more willing to work through short sales,” said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank in Westbury, N.Y. “In this marketplace if the lenders can negotiate in any way to get rid of a bad loan, they’re going to do it.”
The Treasury Department said last week that it would increase incentives for lenders to work out short sales when borrowers fail to keep pace with their loan payments. The department did not release details about those incentives.
...Banks encourage short sales because they lose less money on such transactions than they do in foreclosures, where they must sometimes carry the house for months before selling it.
Hopefully this really works out nearly as good as the article portrays. An increase in short sales and a reduction in foreclosure would be a good thing. There appear to be two big roadblocks - second mortgages and large differences between the current liens and the potential selling prices. If the difference between the home price and the purchase price is less than 10% is likely but bigger differences (which is what is happening in the really hard hit areas) the lenders are still not negotiating as much.