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Bank of America Cooperative Short Sales Program created to expedite approval

Bank of America, the nation’s largest loan servicer, had one of the lowest loan modification rates, with 14 percent of problem loans in trial workout plans as of Oct. 31, according to the Obama Administration.

The Charlotte, North Carolina-based bank started a “cooperative short sales” program in October and may close its first short sale through the program in December, said Dave Sunlin, senior vice president for foreclosure and real estate management.

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Pay-Option Mortgages originated by Countrywide

Many borrowers waiting for short sale approval obtained pay-option adjustable-rate mortgages issued by Countrywide Financial Corp.. BofA bought Countrywide, once the nation’s largest mortgage originator, for $4 billion in stock in 2008.

Short sales benefit a neighborhood because they clear out stagnant properties that may have an adverse effect on values, said Sean Shallis, a senior real estate strategist with Weichert Realtors in Hoboken, New Jersey. Shallis has one home with bank approval for a short sale and three others waiting approval on the same street in Jersey City with views of the Manhattan skyline.

Cutting Losses

Short sales also help the bank, because foreclosed properties lose more value when they are vacant or a homeowner vandalizes a house on the way out, Sunlin said.

Banks typically expect a 10 to 15 percent decrease of loss severity with a short sale.

Losses on prime loans going through the foreclosure process averaged 49 percent versus 34 percent for a short sale as of Oct. 1, according to a Nov. 10 report by Laurie S. Goodman, senior managing director of Amherst Securities Group LP. For subprime loans, losses averaged 73 percent for a foreclosure compared with 59 percent for a short sale, Amherst reported.

“The loss severity of short sales is lower but it’s not low,” Goodman said.

How your credit is affected by a short sale

For a borrower’s credit history, a short sale is typically reported as “settled” and considered as severe as a foreclosure, said Maxine Sweet, vice president of public education for Experian PLC, the world’s largest credit-reporting company. The impact of a short sale on a credit score is similar to that of a foreclosure. It may drop a credit score of 780 to 620, according to Minneapolis-based FICO Corp.
Source: http://www.bloomberg.com/apps/news?pid=20603037&sid=aUUKgeazm0GA

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