Strategic Short Sale Stats
As predicted here and elsewhere, strategic short sale, that is to say voluntary, non-hardship short sales, are increasing. Analysts for Morgan Stanley say that strategic short sales represented about 12% of all defaults in February 2010 as opposed to 4% in 20007.
Further, the higher the borrower’s credit score and the larger their loans, the more likely they are to stop paying their mortgages. Possibly, that reflects both the greater financial acumen of these high-dollar homeowners as well as their greater range of housing options once they are out from under their loans.
Across the country, about 15 million homeowners are either behind in their payments or in some stage of foreclosure. Across the country, about 20% of all homes are underwater, pointing to an endless surge of foreclosures for years to come unless something is done.
Obviously, with a tsunami of pre-foreclosures waiting in the wings, home prices will not recover. Analysts are now predicting it will take at least 3 to 5 years for the current distressed home mortgages now in the pipeline to clear. At that rate, ever more homes will join in.
What Is Causing the Strategic Short Sale Logjam?
Why would so many homeowners bailout on their mortgages and their homes? People do not like to give up their homes and will do anything to keep them, short of financial suicide. Homeowners take money from retirement accounts and run up credit card bills before finally realizing they can’t catch up.
Of course, most of the high-dollar homeowners have asked their mortgage holders for help. As discussed many times here, banks take many months to make their decisions, often outright refusing to help at all. Offering what these homeowners really need, a principal reduction, almost never happens. Banks really do not like to “forgive” a debt or any part of it. A contract is a contract, right?
Cognitive Dissonance: Banks and Strategic Short Sales
“Broad-based principal reductioncould result in decreased access to credit and higher costs to consumers because lenders will price for forgiveness risk,” that piously intoned by JPMorgan’s mortgage unit.
Not mentioned–Morgan Stanley defaulted on a a $2 billion loan two years after it bought Crescent Real Estate Equities Co. and handed over 17 million square feet of office buildings to lender Barclays Capital. Morgan Stanley also agreed to hand over five San Francisco office buildings to its lender, Blackstone Group, two years after buying purchase.
The biggest strategic short sale of all, though, occurred in January 2010 when , Tishman Speyer Properties LP and BlackRock Inc. defaulted on a $3 billion mortgage on Manhattan’s Stuyvesant Town and Peter Cooper Village apartments, the largest residential enclave in New York City. Its sale in 2006 for $5.4 billion marked the biggest U.S. real estate transaction.
The big financial entities so reluctant to help homeowners are themselves the beneficiaries of taxpayer largesse and, clearly, have no problem walking out on their own mortgages. Perhaps, when the big financial institutions stop talking out of both sides of their mouths, we can start to find solutions to this huge problem.