Short sale—in which a home is sold for less than the balance due on the mortgage but the lender accepts that as payment in full—is a far better alternative for homeowners. And also for the lenders.
That's not just an adovcate's view. A realty company in Massachusetts recently did a study of MLS data to show that short sales offer 24 percent greater returns for lenders than foreclosures. If Fannie and Freddie got on the bandwagon of supporting them, the effect could be much larger.
Stay tuned for the next issue of Shelterforce in which we'll be exploring a few programs that are using short sales to a third party and owner buy-backs as a way to keep homeowners in their home—essentially a principlal modification.