Lenders: Incentives make sense for both sidesThe national banks offering cash incentives to delinquent borrowers in short sales say the practice makes sense.
By: By Karen Rivedal, The Wisconsin State Journal, Superior Telegram
The national banks offering cash incentives to delinquent borrowers in short sales say the practice makes sense.
"We think a short sale is a better and faster solution for the homeowner and the neighborhood and the investor, when the homeowner doesn't qualify for a modification," said Chase Bank spokeswoman Christine Holevas. "It allows everything to move forward."
Holevas also confirmed her bank was doing more short sales and offering incentives of up to $35,000 per seller.
"There's a formula (for the amount awarded), not everyone gets that," she added, while declining to describe details of the formula.
Similarly, Bank of America spokesman Rick Simon said the bank had "significantly" increased the number of short sales the past few years in an effort to "address the slow economy and housing market."
He said Bank of America closed 107,000 short sales nationally last year, which was up from 92,000 in 2010, which in turn "more than doubled" its 2009 volume.
Banks often refer to their seller incentives as "relocation assistance," noting sellers may use the money for expenses such as rent and moving costs. Critics say that rationale may work for incentives of up to maybe $5,000 but beyond that look excessive -- or more like bribes.
Trent Chapman is a real estate broker in northern San Diego County who also runs a blog, TheShortSaleGenius.com, that offers training to agents on handling short sales. He said banks, in some cases, can afford to forgive sizeable mortgage deficits and give cash incentives because the banks at some point acquired the loans from other lenders at a deep discount themselves.
Chapman and others also have argued that the larger incentive payments, which don't always appear to be tied to the value of the property, serve as good public relations for the banks. Or they may be designed to quietly get rid of loans that the banks could have trouble proving they owned in foreclosure court, Chapman speculated, because of title problems or evidence of mortgage-servicing fraud or abuse.
The nation's Big 5 banks, including Bank of America and Chase, just acknowledged concerns over offenses like that, in a national settlement in which the banks pledged to spend
$25 billion, mostly on principal write-downs and refinancings for some borrowers.
"It could be bad (paperwork) they are worried about, and they either pay out the money now (in incentives) or have liability in the future," Chapman said. "The most politically correct answer is they've looked at the numbers and they realize they're better off giving people incentives to do short sales, because they do lose a lot more in foreclosures, and it makes a lot more sense for them to not carry bad properties."
Simon wouldn't provide specifics on how Bank of America determined incentive amounts, saying it was done "case-by-case." The bank's offerings included a pilot program to encourage short sales in hard-hit Florida, which ended in December but gave up to $20,000 to each delinquent borrower, or 5 percent of the loan balance. Some of its other programs award incentives of $2,000 to $3,000.
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