Short sales and foreclosures

25 Apr 2012 by Jim Fickett.

One might think, from a recent report, that a major strategic shift to more short sales was underway. In fact, foreclosures remain the primary means to terminate nonperforming mortgages.

Today Bloomberg reported, based on LPS data, that Short Sales Surpass Foreclosures as Banks Agree to Deals:

The number of U.S. home short sales surpassed foreclosure deals for the first time as banks became more agreeable to selling houses for less than the amount owed on their mortgages, according to Lender Processing Services Inc. (LPS)

Short sales accounted for 23.9 percent of home purchases in January, the most recent month available, compared with 19.7 percent for sales of foreclosed homes, data compiled by the Jacksonville, Florida-based company show. A year earlier, 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures. Short sales exceeded foreclosure deals for the first time in November, according to the firm.

Bloomberg does not link to an LPS report, so it is hard to check the details, but it would appear that what is being counted here under the foreclosures label is only direct transfer of a property from the previous owner to a new private party, at the foreclosure auction. In other words, a large fraction of foreclosures, in which the bank buys the property at the foreclosure auction and then resells it in the open market, is left out.

Here are total foreclosure sales, including both sales routes, and short sales across the 2/3 of the market tracked in the national Mortgage Metrics report:

At least through the fourth quarter, there is no big change in trend, and foreclosure sales remain about double short sales.