Banks offering cash incentives for short sale sellers?

Received this via email from an industry insider. It’s a letter from Wachovia Mortgage offering a $5,000 cash incentive to the a (presumably underwater) mortgage holder if they complete a short sale within 60 days. Click either image to enlarge.

Wachovia short sale incentive

Wachovia short sale incentive

Quoting in part:

These are challenging times and many people feel they are running out of options. Whachovia Mortgage is pleased to let you know about an alternative you may not have considered — a Short Sale.

Call us to learn more about the benefits of a Short Sale and how you may qualify for a $5,000 seller incentive!

Considering all the stories about banks taking forever to respond or simply not responding at all to short sale offers made by potential buyers, this seems like an odd tactic.

Has anyone else seen this with any other banks? Are the banks beginning to approach short sales differently than they have been over the past year?

Hat Tip: Ray Pepper, 500 Realty


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

38 comments:

  1. 1

    Looking at that letter, it states that the seller will receive the 5000 dollar credit if the sale closes within sixty days of receipt of the letter. I’ve never heard of a short sale closing in under sixty days, it’s just hard to fathom..Maybe it’s just my suspicious nature, but I don’t put a lot of trust in Wachovia and their lending brethren.

  2. 2
    biliruben says:

    In my limited experience, yes.

    I’m helping my sister through a short sale down in Clark County, and Wells has been positively zippy in there responses. The real rub is the second, which 100% worthless if the house goes to foreclosure, but the two banks are actively negotiating and promise a response within two weeks. The usual bribe (on or off HUD) seems to be 2- 3 K.

    I think that banks are finally getting that they don’t want possession of a trashed house.

  3. 3
    biliruben says:

    Also, Treasury is tossing in a bribe to the owner of the second and the seller, which is probably greasing the wheels a bit:

    https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

    The Treasury Department is offering incentives on short sales by providing a $2,500 subsidy, $1,000 to the servicer and $1,500 to the seller for moving expenses. In addition, investors can get $1,000 by allowing subordinate lenders to get $3,000 in proceeds from the sale. The program is effective April 5, but servicers can implement it earlier.

  4. 4
    biliruben says:

    Do you have a copy of the referenced chart?

  5. 5

    @Ira – it’s almost a bit ironic because the bank is usually the botleneck. Wouldn’t it be their incentive to delay past 60 days? In any event, it’s good to see banks embracing the short sale option.

    @biliruben The off-HUD bribes are definitely not legal. There was a whole blowout in January when it was identified BofA was doing that, particularly with 2nd position lienholders.

    It’s going to be an interesting 2010, that’s for sure.

  6. 6
    JJL says:

    But don’t forget to sign the promissory note on the deficiency…

  7. 7
    Ray Pepper says:

    Hmmm.

    The Vegas Line has scoring a $5000 check odds going off at the same rate of getting a loan mod—less then 6%.

  8. 8

    RE: Ray Pepper @ 7
    Funny, those are the same odds as The Tim closing on a house by March 24th.
    FWIW, I found Wells Fargo to be extremely easy to deal with on a bank owned home. It closed in 37 days.

  9. 9
    softwarengineer says:

    RE: Ira Sacharoff @ 1

    And Go Over the Short Sale Contract With a RE Attorney Finetooth Comb Before Signing

    There’s also like $75,000 Promissary Notes you may of just agreed to leading to possible wage garnishment after you move out, if you don’t make payments on the short sale contract.

  10. 10
    The Tim says:

    By Ira Sacharoff @ 8:

    RE: Ray Pepper @ 7
    Funny, those are the same odds as The Tim closing on a house by March 24th.

    Considering we don’t even have any offers out there right now, and a minimum closing would take about 30 days best case, I think you are maybe being a little generous on those odds.

  11. 11

    It could take less than 30 days if you’re paying all cash, and we all know that as the Seattle Bubble mogul, you’ve got 400,000 dollars stashed under your mattress.

    By The Tim @ 10:

    By Ira Sacharoff @ 8:

    RE: Ray Pepper @ 7
    Funny, those are the same odds as The Tim closing on a house by March 24th.

    Considering we don’t even have any offers out there right now, and a minimum closing would take about 30 days best case, I think you are maybe being a little generous on those odds.

  12. 12
    One Eyed Man says:

    We’ve all heard of “cash for keys.” These letters are just the evidence that this type of strategy is now firmly incorporated into the business plan of certain banks loss mitigation departments. Isn’t the real suprise that it’s taken big banks this long to establish a business model to streamline the disposition of over encumbered property?

    Sure, a year ago the big lenders were still undercapitalized and probably delayed change because they needed a clearer picture before deciding what to do. They needed to know they could make money to fund diminishing loss reserves and they needed to go thru the stress test and raise capital so they may have had an incentive to postpone the write offs that short sales would bring on. And no doubt, the banks had to swallow hard and decide it made business sense to spend some money, revise their loss mitigation operations and hire sufficient staff to handle the onslaught of short sale applications and REO’s.

    It takes businesses time to adapt and survive to the changing business environment. I don’t have an MBA but I’m pretty sure that one of the first things most businesses do when they suffer losses is cut expenses and lay off people. After cutting costs to stop bleeding cash, they try to figure out what’s wrong with current operations and fix the underlying problems to make themselves cash flow positive (if not profitable) again.

    As I’ve been saying in my comments for the last several days, the picture of the business environment is becoming clearer in part just because of the passage of time without further emergent crisis. There is more economic certainty on which to base business plans. Large banks now have the capital and the earnings to replenish their loss reserves. They are beginning to feel they can establish a business plan and spend some money on an operational model to clear out the bad loans quicker and hopefully with less cost resulting from foreclosure expenses, repairs, marketing expenses, and the lost loan interest that will never be paid.

    Pfft, you keep asking “What does recovery look like?” This is what it looks like. These actions don’t guaranty recovery but these types of changes in business operations are the steps that are necessary to create recovery. The banks are changing the business model for the loss mitigation departments in an attempt to deal with the change in business conditions brought on by collapse of the bubble. In the face of adversity, you have to adapt and survive before you can grow and prosper. This is a sign that the real estate crisis is beginning to move into the middle innings.

    These sorts of operational reorganizations are going on throughout the economy. I know of a high end buider who has adjusted their product mix to build less expensive homes. Ford has reorganized and changed its product mix without government assistance and is profitable again. The large banks have raised capital necessary to avoid a Friday encounter with the grim reaper. A publicly traded building materials supplier I know of has closed 4 of its 17 distribution centers in the western US and is now running cash flow positive after over a year of cash drain that cut its cash reserves in half.

    These letters offering cash are a change in the business model of loss mitigation departments to decrease the costs involved in the disposition of properties that are overencumbered. This change has been slow in coming, but it takes time for large bureaucratic business entities to adapt and survive.

  13. 13
    Willy Nilly says:

    It seems the pathways short sale transactions can take is all over the place; perhaps for investors they may make sense, for the person on the street not so much. For buyers, having considerable time flexibility and a simplified criteria of requirements would be an ideal position for pursuing short sales (perhaps buying cash as well). Personally, I have considerable flexibility – but extensive requirements – so this pretty much puts me out of the hunt.

    Is anyone up for making a flow chart or decision tree about the life cycle of these creatures? It seems like a good topic to pursue with all the brain power and organizational skills here at the Seattle Bubble, and it may be much more interesting that stories of Claim Jumper induced illness.

  14. 14
    AMS says:

    RE: One Eyed Man @ 12 – Could you give us an update on the Indiana situation? Was the $25k offer accepted?

    Pfft, you keep asking “What does recovery look like?” This is what it looks like. These actions don’t guaranty recovery but these types of changes in business operations are the steps that are necessary to create recovery. The banks are changing the business model for the loss mitigation departments in an attempt to deal with the change in business conditions brought on by collapse of the bubble. In the face of adversity, you have to adapt and survive before you can grow and prosper. This is a sign that the real estate crisis is beginning to move into the middle innings.

    While I do agree that acceptance of current economic conditions, as well as current prices levels, is part of the recovery process, on an accounting basis, these losses are going to have to be recorded at the point of sale. It’s no longer an option to continue to hold on to properties to delay the massive losses. The idea of burying the problem away in the assets is becoming a problem.

    While most homeowners are not subject to GAAP reporting, the concept is the same. Essentially this is the whole argument of the realized versus unrealized losses. There are owners out there that take the position that there is no loss until sale. It’s true there is no realized loss, but the value of the property is not what is once was.

    Lenders do not need to worry about what the peak value was, but rather what the principal balance on the note is, plus various other things, including time. Taking a simple model, if a lender is owed $300k on a home that was once worth $350k, if the market goes down by 20%, then it’s quite close for the lender.

    Moving forward, if you are a lender, and you think the value of your collateral is going to go down another 20% by the time of sale, you could easily pay 1-2% today to get it sold. This is profit maximization (or loss minimization) based on expected future value. Not only that, the sale for a net higher amount is sooner rather than later.

    They are beginning to feel they can establish a business plan and spend some money on an operational model to clear out the bad loans quicker and hopefully with less cost resulting from foreclosure expenses, repairs, marketing expenses, and the lost loan interest that will never be paid.

    Specifically I’d like to concentrate on “lost loan interest that will never be paid.” If the principal balance is fully recovered, then we can discuss this. In other words, let’s assume there is a $100k loan, and the $100k is fully recovered. The first thing I’d like to note is that there is no prepayment penalty for long-term mortgage secured debt. So the “lost interest” might have never been realized. In the world of serial refinance, not many loans were held to maturity.

    Ok, let’s move forward and assume that the loan will be held to maturity. If this is the case, then we need to consider the difference in the rates paid. There are some people who have very low fixed rate debt. The lender would love to have that debt paid back sooner, rather than later. On the other end, there is high rate debt. In the case of high rate debt, the borrower has an incentive to pay the debt back sooner rather than later. Let’s forget about some of the other problems, such as lenders increasing the rates hoping to be paid back sooner, but then the borrower has insufficient cash flow to service the debt. Basically, a borrower does not pay cheap debt sooner, but a borrower pays back expensive debt as soon as possible.

    With that said, we are in a position to discuss the “lost interest.” If the debt is below current market rate, then the “lost interest” is negative. In other words, the lender wants the money paid back sooner, and on a finance basis is willing to discount the debt to a fair value today (note that on an accounting basis, the reduction of principal will be a loss, yet on a finance basis the reduced principal may be net positive). On the other side, if the interest rate is attractive to the lender, a high interest rate, then there is some “lost interest,” subject to the two issues outlined above: 1. default risk, 2. prepayment.

    A publicly traded building materials supplier I know of has closed 4 of its 17 distribution centers in the western US and is now running cash flow positive after over a year of cash drain that cut its cash reserves in half.

    My comment: Don’t confuse positive cash flow with income. This might be similar to the trucker that I discussed the other day. Sure his cash flow is positive today, but he is using the truck up faster than the payments. He knows it, and if things don’t get better, it’s only a question of time before he needs the new tires, or something else, and the cash flow will be negative. The problem is that the capital investment in the truck is being consumed faster than the underlying debt is being paid back. Sure the trucker is running on positive cash flow, today, but it’s only a matter of time before he hits negative cash flow.

    This is once again a case where finance cannot save the problem of expenses being greater than income.

    The ultimate problem, however, is that he is not being honest about what his expenses are.

    I am sure we’ve all seen this in automobiles too. Someone goes out and buys a new car with low payments. The payments are low mainly because the duration is long (long relative to the life expectancy of the car, as it’s being used). It’s starts out under warranty, so the maintenance costs are low, but what’s not computed is the value of the warranty. Essentially the costs of the car are based on cash flow, i.e. the payment. However, once the warranty runs out because of excessive use (i.e. miles are reached far before time), there is both the payment and the maintenance cost. What then?

    Initially the cash flow situation might be better, but after time, the cash flow will go negative again. Of course, simply roll the added cost of a more expensive car into another loan, and the story continues.

    …until one day the music stops.

  15. 15
    AMS says:

    By biliruben @ 2:

    I’m helping my sister through a short sale down in Clark County, and Wells has been positively zippy in there responses. The real rub is the second, which 100% worthless if the house goes to foreclosure, but the two banks are actively negotiating and promise a response within two weeks. The usual bribe (on or off HUD) seems to be 2- 3 K.

    Could you give us an update as to what you see as far as market conditions in Vancouver/Clark County?

  16. 16
    The Tim says:

    RE: AMS @ 15 – With 14% unemployment it seems like homes probably can’t be moving all that fast.

    Indeed, looking at the latest NWMLS release and comparing to the OFM population estimates, here are the number of people per closed SFH sale in January 2010 for a few counties (i.e. – lower numbers means faster rate of sales):

    • King: 1,997
    • Snohomish: 1,714
    • Pierce: 1,695
    • Thurston: 1,797
    • Kitsap: 1,440
    • Clark: 12,682

    Of the 21 counties covered by the NWMLS, Clark has by far the highest ratio of population to Jan.10 closed sales. Only four counties come in over 2,000. Okanogan at 3,682, Ferry at 7,800, Clallam at 9,929, and Clark.

    Definitely not a good time to be trying to sell a home in Clark County.

    FWIW, my parents live in Clark County, and my dad is set to lose his job in June. Fortunately they own their house free and clear and have no desire to move.

  17. 17
    AMS says:

    RE: The Tim @ 16 – Most of the data sets that I track lump Clark County with the Portland market, which is fine and all, but the problem is that Clark County has been hit much harder than Washington or Multnomah Counties. Clackamas County has its share of problems in the high end homes. Take a look at Happy Valley, for example. That said, I don’t consider Clackamas County to skew the data up or down.

    There are two major highway crossings to Portland, the I-5 and I-205, yet the price difference and market value changes between Clark County and the very large. There are no other highway crossings directly between Clark County and Oregon.

    Why is Clark County hit so hard when Multnomah, Washington, and Clackamas Counties have not been hit as hard?

    (I don’t particularly track the more rural Columbia, Cowlitz, or Skamania Counties.)

  18. 18
    The Tim says:

    By AMS @ 17:

    Why is Clark County hit so hard when Multnomah, Washington, and Clackamas Counties have not been hit as hard?

    Couldn’t say for sure, but the real estate market super-slowdown there is probably closely related to the employment picture.

    Clark: 13.8%
    Multnomah: 10.1%
    Washington: 9.0%
    Clackamas: 10.0%

  19. 19
    AMS says:

    RE: The Tim @ 18 – Given so many who claim that Washington is “business friendly” and Oregon is “unfriendly to business,” and given the different tax structures, and further given that those in Clark County could travel to the other three counties without too much trouble, I have no good way to explain the difference in unemployment rates. Maybe Clark County has a lower level of education? None the less, it’s an interesting situation that I’ve been watching for about 3 years.

  20. 20
    biliruben says:

    Spending the weekend in very rural Clark County (Amboy, La Center, Battle Ground, Yacolt), I can give you vague impressions.

    The area is comprised primarily of out of work lumberjacks turned out of work construction workers and farmer/rancher/live-off-the-land types; generally heavily armed.

    A proud people again brought low by the latest recession and bursting of the bubble. The bars are filled with functional alcoholics that still can keep it together enough to construction work part time, and non-functional ones that spent their energies fighting, shooting, and generally trying to get into the grave sooner rather than later.

    Not a lot of home-buyers in that bunch.

    There are very few houses on the market that are not under water in the low-end price ranges. Lot’s of manufactured homes on acreage that it is very difficult to get a loan for.

    My guess is that the rural population was heavily employed in the construction/housing industry, which does not appear to exist any more. At least in Clark county.

  21. 21
    One Eyed Man says:

    RE: AMS @ 14

    I got a voice mail from my sister this morning concerning the Indiana deal. We traded voice mails and I haven’t made contact yet but she said they are still negotiating.

    As to foreclosures and changes in business plans and operations:

    1. My prior comments on the subject have to do with businesses adapting their business operations to the economic downturn. With the possible exception of tax consequences, the issue of losses to the homeowner on a short sale is irrelevant. Their loss by doing a short sale doesn’t change except to the extent they stop getting free rent when they move out and decide to take cash for keys as an alternative. If they don’t get the debt balance of the debt foregiven, they will normally let the house go to foreclosure at least in most of the western states where you need to go judicial to get a deficiency judgment.

    2. My point about loss recognition by the banks is that they no longer have any great need to ignore potential short sales for the purpose of stalling the recognition of the loss. Allowing the short sale should fully recognize the loss as the collateral is disposed of and the personal liability of the debtor is most likely written off.

    3. Lenders appear to be spending cash to staff the loss mitigation departments and pay for things like cash for keys. Spending cash to accomplish these things shows confidence that they are willing to spend money now if they think it will decrease the loss in the long run.

    4. My reference to unpaid interest was intended only as a reference to the loss of return on the capital until the house is disposed of.

    5. Finance can solve the problem of expense greater than income if an issuance of new equity is used to repay debt and the decrease in interest expense is sufficiently large. This doesn’t often happen because such a large equity offering would commonly be unacceptably dillutive and because new equity commonly wants a projected return higher than the debt being paid off because equity generally carries more risk. Regardless, my discussion of reorganizations was directed more at changes in business plans and operations most of which are not pure finance and some of which like cash for keys require the business entity to incur additional current expenses to mitigate their eventual loss. The fact that they are willing to incur expenses shows confidence in their business plan to save money in the long run by absorbing the loss now and converting the capital recouped from a non-productive investment to a productive investment.

    6. The publicly traded company that went cash flow positive had lost money in 7 straight quarters with the highest quarterly loss being about $.71 per share in Q1 of 2009. In Q3 of 2009 they had reduced the loss to $.05 per share and although I haven’t seen a public filing for Q4, I believe they were profitable in Q4.

  22. 22
    Sniglet says:

    Just a reminder that the Optimistic Bear internet radio show will be airing live tonight (Tuesday the 16th) at 9:00pm Pacific Time. We will be discussing the past week in economics and finance. Feel free to call in and share your thoughts.

    http://surkanstance.blogspot.com/2009/11/introducing-optimistic-bear-weekly.html

  23. 23
    AMS says:

    RE: One Eyed Man @ 21 – Thanks for the Indiana update. Let us know what the final deal is.

    With the possible exception of tax consequences, the issue of losses to the homeowner on a short sale is irrelevant. Their loss by doing a short sale doesn’t change except to the extent they stop getting free rent when they move out and decide to take cash for keys as an alternative.

    The failure has already happened here. Let’s take the owner that can make the payments, but is struggling. The owner wants to sell, but the sale will be short. Rather than take the short sale, the short-term decision is made to wait for a higher price. It could take years for prices to come back up. So the question is what to do to minimize losses.

    2. My point about loss recognition by the banks is that they no longer have any great need to ignore potential short sales for the purpose of stalling the recognition of the loss. Allowing the short sale should fully recognize the loss as the collateral is disposed of and the personal liability of the debtor is most likely written off.

    3. Lenders appear to be spending cash to staff the loss mitigation departments and pay for things like cash for keys. Spending cash to accomplish these things shows confidence that they are willing to spend money now if they think it will decrease the loss in the long run.

    Yes, the loss mitigation staffing has increased. Yes, lenders are much quicker to realize they must take losses today to minimize the total loss if delayed. The days of delay paying off are long gone. Point taken.

    4. My reference to unpaid interest was intended only as a reference to the loss of return on the capital until the house is disposed of.

    My strategy is to capitalize the unpaid interest into the principal, but the value of the debt does shift with changing interest rates. I know a guy who had some really nice mortgages, or so he thought. He was paid 10% for quite a few years, and he thought he could lose, as he could always foreclose and sell again with a similar rate.

    5. Finance can solve the problem of expense greater than income if an issuance of new equity is used to repay debt and the decrease in interest expense is sufficiently large.

    I guess I need to adjust this a bit. Finance will not solve operational problems, but if the only problem is the finance cost, then yes, better finance can solve finance problems. In part, however, there is a “fair rate,” and any lower rate simply subsidizes the operation.

    Also a borrower always prefers a lower rate to a higher interest rate.

    MODIFICATION:

    Finance cannot solve the problem of negative EBIT, but it can solve negative NOPAT under certain, but not all, circumstances.

    That should fix it.

    Regarding the positive cash flow with earnings also going positive: This is a good sign that the company is heading in the right direction. If the earnings are positive, then the cash flow should follow, or the problem can be solved with short-term lending.

    Thanks again. I always enjoy our discussions.

  24. 24
    AMS says:

    RE: AMS @ 23 – I went downstairs and realized that this is still not right: “Finance cannot solve the problem of negative EBIT, but it can solve negative NOPAT under certain, but not all, circumstances.”

    Change it to:

    “Finance cannot solve the problem of negative EBIT, but it can solve negative net income under certain, but not all, circumstances.”

  25. 25

    RE: Ira Sacharoff @ 1 – Actually Wachovia is known for their super fast short sale approvals. And that offer has been an ongoing incentive for the past four months.

  26. 26
    query_squidier says:

    I consider myself reasonably intelligent, but where this housing market and all the schemes whatwith the banks and the clandestine tactics of all parties involved are concerned, I don’t understand nor trust much of anything. I don’t really trust anybody. As a renter through all of this, I don’t feel comfortable taking my savings into this Game. The “rules” are changing too quickly and the “real estate market” is suspicious at best. Whatever happened to earning a down payment and signing a 30-year fixed mortgage?

  27. 27
    Gilly says:

    Wachovia program is apparently aimed at people already in default, heading into foreclosure. Surely it’s to save costs for the bank – short sale process cheaper than foreclosure – and to save properties from being trashed by exiting owners.

    “Depending on the situation, we may offer a small sum of money –— generally an amount that can help with moving expenses. In exchange, the former owner agrees to leave the house by a specified date and that the property will be left in a good and clean condition,” [spokeswoman from Wells Fargo mortgage unit, quoted in a San Diego news article]

  28. 28
    biliruben says:

    Read the link in post 3. It ain’t Wells. It’s the Treasury footing the bill, though they probably aren’t eager to announce that. A great program to try keeping housing stock from becoming derelict.

  29. 29
    Haybaler says:

    A couple of you guys have been spending a lot of time hashing through the accounting process of offering the deal at the top of this post.

    A question that keeps nagging at the back of my mind as I watch Short Sales become Foreclosures become REO listed and sold by the financial institutions….

    If Investors are willing to sell REO at fair market prices, taking huge losses (effectively the same or worse than a principle writedown), then why not enter into a modification with the existing homeowner that reflects what (we all know now) is going to happen in the event of a default to the sale price of the residence?

    Every corporate entity involved in the process is paying out…the investor, the Treasury, the mortgage insurance company….

  30. 30
    One Eyed Man says:

    RE: Haybaler @ 29

    I don’t have any inside information from lenders on the issue, but I think primarily it’s because lenders feel that if there is a possiblity for future upside in the property the lender should be made whole before the owner gets a profit so they are only willing to defer current payments rather than forgive principal on a modification if the borrower retains the possibility of a future gain on the property. If the borrower is losing the possibility of any upside on the property, the lender doesn’t have the same objection. Also I think lenders are more comfortable taking the loss if its a function of actual market price discovery after a property is put on the market rather than a function of an appraiser’s opinion of price in a loan modification.

  31. 31
  32. 32
    Tom Poe says:

    I am a bit skeptical with Bank Of Amrica letting me know about the new loan incintives to clear up potential increases in my ARM. They have offered a 5.75% fully amotized loan (locked in) for a small re-finance fee. Does this sound legitimate to anyone?
    Should I care up until signing?

  33. 33
    Haybaler says:

    Reply to Tom Poe at 32..

    Sure, care….

    I Assume you have received an offer from your lender directly?…or is it from a broker entity making marketing claims? Sometimes it is hard to tell who is pitching to you.

    Additionally, check into the possibility of buying the rate down further in exchange for an additional small fee….usually the return on investment is reasonable and if you intend to stay will save you tons over the long term.

    You may have a smoking deal currently on a variable rate note….but most folks expect interest rates to adjust upwards over the next year or two…it might make you feel more secure to nail down a fixed rate.

  34. 34
    AMS says:

    RE: Haybaler @ 33 – “but most folks expect interest rates to adjust upwards over the next year or two”

    How about, how can you expect rates to go down much lower when they are at a 50-year historically low point?

    When rates are at a high point, an ARM is a great way to go. But when rates are likely to adjust up, why would one want an ARM?

  35. 35
    Mike B says:

    RE: Ira Sacharoff @ 1

    Keep the faith Ira…i am currently doing this exact thing in Az…

  36. 36
    Ed Powell says:

    This is several years after the thread, but I echo Haybaler 29’s question- “If Investors are willing to sell REO at fair market prices, taking huge losses (effectively the same or worse than a principle writedown), then why not enter into a modification with the existing homeowner that reflects what (we all know now) is going to happen in the event of a default to the sale price of the residence?”

    Why are loan holders resisting modifications and seemingly pushing short sales? Is there a “mechanism” (or those old collateralized insurance notes?) that covers their losses?

    The economy could have heated up much more quickly if “underwater” home”owners” could have adjusted their mortgage payments and had more disposable income. Any answers? Thanks.

  37. 37

    RE: Ed Powell @ 36 – Just a couple of guesses, but the problem with write-downs is the property might later appreciate, so that has to be dealt with. Also, there are a ton more people who would be interested in a write-down than interested in a short sale or foreclosure. Write-downs could open the flood gates. Just guesses.

  38. 38
    Blurtman says:

    RE: Ed Powell @ 36RE: One Eyed Man @ 30 – Price discovery is what it is.

    It’s sort of an option in’t it? The value fluctuates over time, exercising locks in your gain/loss. Interest rate dependent as well. Maybe the PhD seers directed this strategy?

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