Short sale specialists brace for more business as market slides
Wary lenders watch for collusion between investors and borrowers
By Robert Celaschi of The Sacramento Business Journal

July 20, 2007

"I'm having to hire more people right now just to keep up with it," said Sterling Watkins, a broker and owner of Sterling Short Sales, a Folsom company that assists in arranging such deals.

When a homeowner can't keep up with the mortgage payments, a short sale is one alternative to foreclosure. It can be attractive to a lender in a declining market because it avoids the cost and hassle of repossessing the house, which would have to be sold at market value anyhow.

Lenders are taking back a lot more houses these days. In June, Sacramento ranked No. 8 among metropolitan areas nationwide for foreclosure activity, according to the U.S. Foreclosure Market Report by RealtyTrac Inc. "Foreclosure activity" includes default notices, auction sale notices and bank repossessions.

Statewide foreclosure activity was up 287 percent over June 2006, the company said.

In the first week of June, 177 properties in Sacramento County went back to their lenders, said Scott Thompson, a short sale specialist at Mortgage Resolution Services in Sacramento. Last summer it was more like 20 a week, he said, and the numbers are likely to get worse.

And, he said, most of the owners he works with have good credit scores, so it's not just a case of too many subprime loans.

"The people who are going to start losing their homes are the people who nobody expected," he said. "Up until about 18 months ago, if people had a delinquency problem, they could either refinance out of it or sell it because they had equity."

Now that equity is eroding. Each borrower has different circumstances, but the median price for single-family homes in all of Sacramento County and the city of West Sacramento dropped 7.7 percent for the year ended this May, from $379,000 to $350,000, according to the Sacramento Association of Realtors.

Short sales aren't as simple as asking the lender in advance to accept whatever price the market will bear. It's up to the seller to first put the house on the market, find a buyer and negotiate a deal. Only then will the lender check over the financials and either approve or reject the deal.

• "Most of the people we deal with are more than $1,000 away from making ends meet when their loan adjusts."
• The big wave of mortgage resets isn't due until next year, Thompson said. "We are talking about big numbers going forward."

From Bay Area Housing Bubble Wiki