Why Would A Lender Want To Short Sale A Home In Henderson?

Posted under News, Short Sales by Louie Frias

Why would a lender (AKA investor/service/insurer) approve a short sale payoff?

The short answer (pardon the pun) is because they are not in the business of owning property. Nor are they in the business of holding onto non-performing assets. Let’s look at the ramifications and benefits for a lender to approve short sales:

How the assets are performing: Delinquent and non-performing loans place a huge burden on mortgage
lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with
potential losses. These funds can’t be put to work generating new loan fees until the bad loans are resolved.

A successful short sale enables the lender put more money to work. When an asset is performing, the lender is
allowed to lend 7-9 times its value and collect interest on that amount. When it’s not performing, they can’t loan
money against the asset (because it’s no longer considered an asset). The real numbers? Mutiply $1 billion of
loans outstanding by the 7-9 times factor and you see the damage a non-performing asset can have on a lender!
Obviously, getting a toxic asset off the books through a short sale frees up the lender’s ability to generate
income through their primary business- lending money.

Asset Repair & Management Expenses: If a lender acquires a property through foreclosure, the property will be
repaired and managed until it is resold. It’s expensive to repair properties that are often vandalized by the
former owners, and more expensive still to manage a portfolio of real property assets (aka homes) spread
throughout the US. Property maintenance, utilities, repairs and administration are all costs the lender would
prefer to avoid. A short sale eliminates most of these costs.

Keeping Uncle Sam Happy: Mortgage lenders have come under pressure from the Obama Administration to
work with borrowers to resolve their mortgage hardships. The Home Affordable Refinance Program and the
Home Affordable Modification Program are but two examples of the comprehensive Making Home Affordable
strategy initiated by the Federal government in the past year. The sands continue to shift constantly and swiftly
in the pre-foreclosure desert. No matter, the government provided billions of dollars to failing banks and they
expect to see non-performing assets begin to disappear from the books.

A final note: Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary
mortgage market, and Wall Street is watching their performance. Lenders need to sell these loan portfolios in
order to put the funds back to work. This is done by lending the money which results in income generated
through interest and loan fees. If mortgages perform poorly after they are sold it could impact the lender’s
ability to sell their loans on the secondary market. A successful short sale gets the loan payoff resolved quickly
which enables the lender to more effectively sell on the secondary market…aka “Wall Street”.

Lear more by getting a FREE copy of my eBook,

“Should I Short Sale My Home?”

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