Thanks for a good addition to the discussion. Admittedly I didn’t cover every aspect of this discussion, and I agree with most of what you say. However, if banks are showing the loss and it counts against their reserves as soon as the notice of default is filed, then that’s even more reason why short sales shouldn’t have the abysmal failure rate that they do.

But the fact remains that they do.

“There are many reasons why a short sale will not be accepted. Some of the time it can be nothing more than the right person did not see the file in time.” In time? You mean like within four months??? How much time do these people need?

I don’t think we need to posit agents failing to present files for this. REOs close just fine. Moreover non-distressed sales, which are priced tens of thousands higher, are outselling short sales in our area by four to one. At the agent level, it’s the same licensees working on all of them.

“Different targets?” Once again, I agree with you, since that’s what I was documenting. The target for the REO folks are to get the loans off the book ASAP, while for the short sale folks the target is to drag their feet, stick their fingers in their ears, hope the problem goes away, and make everyone else fail. I think “different targets” is correct, but by itself minimizes the extent of the problem.

The cost for a default loan in terms of capital is approximately 6x the cost of a performing loan. Yes, a performing loan still has to have capital set aside in reserve (fractional reserve banking).

There are many reasons why a short sale will not be accepted. Some of the time it can be nothing more than the right person did not see the file in time. What a bank will take at various points also changes just because there can be more than one department involves. The REO folks have different targets than the people dealing with the loans in default prior to a foreclosure auction.