Banks in Arizona shift to short sales

After more than 175,000 foreclosures in metro Phoenix in the past several years, mortgage lenders in Arizona have done an about-face, approving a record number of short sales.

Rather than taking back homes and selling them at auction, bankers say, they are more frequently allowing distressed owners to sell the homes for less than the borrowers owe.

The trend could lead to rising sales prices, because short sales in metro Phoenix tend to sell for higher prices than homes taken back by lenders and resold.

It also probably means fewer empty homes across the region, or at least more homes that are now owned by investors who are fixing them up to resell or rent.

"Lenders don't want to foreclose in Arizona anymore. They want to do short sales," said Steve de Laveaga, senior vice president of Fidelity National Title, who led a panel discussion with lending executives at an industry forecast this week.

Each short sale is still a case of a borrower losing a home, but the impact of a short sale is less damaging for both the housing market and the homeowner's credit.

The consensus among lenders and housing-market experts at the standing-room only event Thursday was that short sales would continue to climb in the Phoenix area and foreclosures would continue to fall. The trend could lead to a rise in the median home value as soon as next year, because it decreases the number of homes sold for bargain prices at auction.

A shift to short sales is momentous for lenders, which only two years ago handled delinquent mortgages almost exclusively by foreclosure. After taking the homes back, banks resold so many for such low prices that sales pushed the area's median home price to a 10-year low.

Now, top lending executives say, they are seeing that while short sales mean a loss for the bank, that loss is less than they would suffer from a foreclosure auction.

At the same time, housing-market indicators are showing positive signs.

Arizona's mortgage delinquency rate is down 32 percent since 2009, a bigger drop than any other state, de Laveaga said. He said the fact that the nation's three biggest lenders sent executives to speak to Arizona real-estate agents and mortgage brokers in the audience is a sign they want to do more to slow foreclosures.

Shadow inventory

Arizona no longer has a large potential glut of future foreclosures looming over its housing market like other states, according to real-estate experts at the forecast.

A few years ago, foreclosures were rapidly climbing, and no one really knew how many homes banks had taken back and not yet resold. At the time, many in the industry worried about this so-called shadow inventory. A flood of homes put on the market after foreclosure would mean an oversupply, and prices would fall further.

The drop in late mortgage payments among Arizona homeowners, along with the decrease in bank-owned homes and foreclosures in metro Phoenix, means the area's shadow inventory is in check, the experts said.

The number of pending foreclosures in metro Phoenix is half of what it was last year, according to the Phoenix-based data service Information Market. The number of bank-owned homes listed for sale is almost a fourth of what it was a year ago, according to the Cromford Report. And because of a record number of short sales closing, the number of houses listed for short sale is down 72 percent from October 2010.

"The foreclosure crisis appears to be finally behind us. The shift to short sales is a great sign the housing market is moving toward a recovery," said Tom Ruff, housing analyst with the Information Market. "I am just not sure why it took lenders so long to see short sales are better for everyone."

Better deals

Bank executives at this week's session said short sales minimize their losses.

The average price per square foot for a Phoenix home sold through a short sale is $71. The average price per square foot for the sale of a lender-owned home is $60.

"We have approved a record number of short sales this year," said JK Huey, a panelist and senior vice president of Wells Fargo Home Mortgage's REO and short-sale division. "We know short sales are better deals overall. We have had to work on the process so we can do them more quickly with fewer steps."

There are many frustrated former homeowners in metro Phoenix who lost houses to foreclosure when they were in the midst of a short sale that would have meant a higher sales price for the home. Before this year, the biggest complaint about the short-sale process was that it took too long and potential buyers walked away as other divisions of a bank foreclosed on a borrower when a deal to sell the house for more through a short sale was in the works.

Bill Borda, a senior vice president with Bank of America's short-sale, deed-in-lieu and distressed-property division, said the lender has approved 20 percent of the short-sale applications made this year. Last year, it only OK'd 1.5 percent.

"We know we need a better batting average on short sales," he said.

He said BofA's goal is to approve short sales within 20 days. The lender also aims to approve more than 60 percent of its short-sale applications next year.

Stephanie Whittier, the Western region distressed-property manager for Chase Bank, said borrowers and real-estate agents can walk into the bank's two homeowners' aid centers in Phoenix or any branch and ask for help on a short sale.

Potential problems

While lenders' changing approach could help the market, it won't stop every foreclosure.

Lenders can make quick decisions on loans they own, but if they are handling a loan held by government-owned Fannie Mae or Freddie Mac or another investor, the guidelines for short sales must come from them. Fannie Mae and Freddie Mac own a majority of the 10,000 bank-owned homes in Arizona.

Huey said Wells Fargo now has only 300 homes in the state. The other lenders on the panel, BofA and Chase, didn't disclose how many foreclosure houses they have taken back in Arizona and haven't yet resold.

The federal government has a short-sale program called Housing Affordable Foreclosure Alternatives, HAFA, which is helping people, the panel agreed. Also, the Arizona Department of Housing is using more of a $267 million allocation in federal funds to help homeowners trying to do short sales.

Many on the panel agreed that many homeowners receiving mortgage-payment aid will likely end up having to sell their homes through short sales in a few years.

As the economic downturn drags on, their incomes won't increase enough for them to pay their mortgage when the assistance ends.

"Arizona's short-sale volume will go up in 2012," said Alex Charfen, a speaker on the forecast panel. "The economy must improve for short sales to slow."

by Catherine Reagor The Arizona Republic Nov. 5, 2011 12:00 AM



Banks in Arizona shift to short sales