The first quarter of 2012 saw more short sales close nationally than foreclosures for the first time, meaning that banks were agreeing to more deals with the current homeowner. Short sales accounted for almost 24% of home purchases versus about 20% for sales of foreclosed homes. This short sales figure is roughly 50% higher than it was than Q1 of 2011.
Depository banks were never designed to be landlords, hold real estate, or voluntarily take on losses on thousands or millions of homes. However these banks can process short sales in much less time AND at significantly less cost than it takes to see a foreclosure all the way through. This ultimately means fewer foreclosures on the market, leading to fewer distressed properties on the market.
That being said, most would agree that the short sale process still takes far longer than it should. This is mainly because there is no uniform way to handle them (each depository bank has their own process). Thankfully helps appears to be on the way.
Fannie Mae issued guidelines to its servicers recently that hopes to improve the timing and methods of handling short sales. The industry said welcomed this news with a "What took so long?" (Fannie Mae completed 70,025 short sales in 2011 and 69,634 in 2010). The new rules apply to all conventional mortgage loans held in Fannie Mae's portfolio or at some point were securitized into Fannie Mae mortgage backed securities (MBS). While not required, servicers are encouraged to follow the guidelines for loans sold to Fannie Mae that are guaranteed or insured by government agencies.