To Avoid Foreclosure, U.S. Homeowners Increasingly Resorting To Short Sales


A report from Fitch Ratings finds that short sales of residential properties continue to rise.

According to the firm's RMBS Servicing Index – U.S.A. report, loan modifications have slowed in recent months, due to declines in mortgage delinquencies, while short sales have become the ‘proverbial order of the day.’

The firm's research shows that short sales by bank servicers peaked at 51% in November 2012, an increase from 20% two years prior. Short sales among non-bank servicers have also increased, peaking at 16% in October 2012 from 11% two years prior, the firm says.

In what some may find a disturbing trend, short sales are increasing because many borrowers who have defaulted on their modified loans are finding that they do not qualify for a second modification, and are therefore looking to make a short sale in order to avoid foreclosure.

Fitch's research shows that 64% of ‘recent’ liquidations were sold as short sales.

Fitch points out that this trend is creating a ‘disparity between bank and non-bank servicer practices in numerous areas like loans per employee, use of temporary staffing and perhaps most notably, staffing levels.’ While bank staffing levels have declined in the past three years, due to the increasing resolution or transfer of defaulted loans, non-bank staffing levels have increased as portfolios have grown.

‘Increased use of non-bank servicers has been particularly evident on subprime loans due in part to their more aggressive use of loan mods and shorter overall timelines,’ says Diane Pendley, managing director, Fitch Ratings.

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