Last month I attended a seminar that focused on Short Sales and Loan Modifications. The speaker, Deborah Leone, is a 20 year veteran of the banking industry much of it at the senior management level. She made an interesting observation; based on governmental and lending industry desires to do away with HAMP and HAFA, it was her opinion that within 12 to 24 months banks will quit approving Short Sales as an alternative to Foreclosure for distressed home owners. She also made the observation that with the exception of principle reduction, loan modifications don’t reduce the amount a borrower owes it just reduces the monthly payment which in turn may increase the cost of the loan. Further, most loan modifications don’t really work and the home owner ends up right back in default.
By now most folks know that Short Sales will negatively affect a person’s credit rating for two years while a Foreclosure will affect it for seven years. That’s huge. And the ramifications of foreclosure can impact a borrowers consumer credit – read credit cards limits – and a borrower’s ability to land a new job or even keep the one they have.
The take-away here is this; Short Sales are actually very rare animals. Banks do not often loan money and then willingly take less in return. So if you or someone you know or care about is in a position where they are considering the relative merits of a Loan Modification/Short Sale/Foreclosure, (and bear in mind that loan mods are taking on average 8 to 12 months to complete), a Short Sale could be the best choice. If that’s the case it may be prudent to move forward sooner rather than later. Not only will Short Sale approval become more difficult as the banks begin to phase them out, once gone they very likely will not be back.
If you would like to know more about Short Sales I can be contacted at 916.203.1360 or sklew@sbcglobal.net.
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