REO vs. Short Sale

Things are changing and changing fast. According to the Las Vegas Association of Realtors in November of 2009 out of approximately 11,000 pending sales, short sales accounted for 8,935 pending sales or 67% – while REO pending sales were a miniscule 2,367. These percentages did a virtual flip flop from the same period in 2008 and many markets around the country are seeing the same trend.

Evidence of what direction the real estate market is headed will never get any more definitive.

It appears that after 3 years of an REO dominated market the tide may be swinging to the short sale now.

The reason for this momentus shift from REO to Short Sale is simple…. because Short Sales mitigate loss MUCH more effectively than REO disposition models and lenders have finally caught on.

A brief analysis of REO VS. Short Sale costs provided to me by a large Wall Street hedge fund heavily vested in mortgage back securities tells the story:

REO: The average loss per foreclosure (REO) is a whopping 65%. That means the investor nets a dismal $35,000 on a $100,000 note.

Short Sale: The average loss on a short sale is 40%. Using the same $100,000 example, the investor ends up with $60,000.

That is a savings of Short Sale versus REO of a whopping 25%!

Hence the sea change in lender loss mitigation models from “foreclose and dispose” to short sales is well underway.

Beyond the obvious evidence cited in Nevada, lenders have been gearing up for short sales on a multitude of fronts.

Almost universally they have signed onto the new HAFA federal plan (Government plan that provides guidelines, time limits, uniformity and pay-out minimums for short sales) with open arms and are now requiring agents process Short Sales through universal web portals that manage real estate transactions.

It appears as though one thing is certain in the real estate industry, and that is change is continuous and eminent and if you are a property owner struggling with your mortgage help is closer than ever.  Contact Pruven today to see what we can do for you!