Tuesday, April 05, 2011
Banks Increasing Incentives to Encourage Short Sales
A year ago, the big news was the government's $8,000 buyer incentive to jump start the housing market. Last summer, Wachovia(now Wells Fargo) began extending cash incentives to homeowners willing to sell their homes as a short sale, rather than going through foreclosure. Borrowers who have found themselves upside down on their Wachovia mortgage could receive 1% of the purchase price (minimum of $2,500) when they sell their home as a short sale. The borrowers get their cash incentive after the successful sale.
More recently, Chase is reported to have raised their ante to as much as $30,000 for higher valued homes. With the Bank's approval borrowers in a short sale sell their property of less than they currently owe in home loans. The lender forgives a portion of the mortgage in order to allow the seller to sell the property.
In the past short sales have been given a bad reputation, often taking longer than a traditional sale, often nine months or longer to obtain the necessary approval of the lender. Many homeowners are intimidated by the whole process and let their home go to foreclosure. They may lose out on a short sale that could in fact be a better choice in the long run.
Banks know that underwater owners are more likely to do a strategic default. Lenders would rather lessen their losses by proactively offering pre-approved short sales to their underwater owners than have the homes go through a foreclosure. Recent studies have proven that the cost of a foreclosure is significantly more than a short sale. Lenders have recently figured out that a short sale ends up saving them money and is in fact quicker than a foreclosure. Wachovia and Chase have set themselves apart from other lenders by turning foreclosures into short sales instead of the other way around. It creates a win-win situation for the homeowner and their Lender.
More info on Short Sales here.