As far as short sales are concerned we have long since taken care of most of the individuals who should not have gotten a loan at all or a loan larger than they could handle. The next wave of client was the individual who lost their job or a portion of their income and has been holding on, waiting for the market to bounce back. We will continue to see these clients as they realize that not only have we not hit bottom, but that the bounce will not be there when it does.
We are also seeing the 800 credit score never-missed-a-payment client who is facing this reality and making a financial decision to do a short sale, a “strategic short sale” so to speak. This client will become a larger portion of the participants in the short sale market because it will simply not make any financial sense to service a $500,000 loan on a $300,000 property regardless of the interest rate or the number of years the bank is giving them to make the payments
We are seeing that same client sometimes forced into a short sale or foreclosure position by the terms of their loan. Many of the “investor” loans were loans with balloons after a number of years. These loans are coming due and there is no ability to rewrite that loan or to even continue on the same terms. An example is a client who paid over $500,000 for a house. The market value of that property today is about 60% of the mortgage amount or $300,000. The loan is coming due next month and the bank can’t renew the loan because the collateral is far less than the loan amount. In this example the client would have to pay at least $200,000 in cash to have the loan renewed (at $300,000). I know very few people who can or will come out-of-pocket $200,000 for a property worth $300,000 and still owe $300,000. Their option is to attempt a short sale or walk away from the property and have a foreclosure.