Bank of America Leads Lenders in U.S. Home Short Sales

(Corrects date of short-sale increase in sixth paragraph of story published April 19.)

Bank of America Corp., the U.S. lender with the most housing-related writedowns, is allowing the highest number of properties to be sold at a loss as short sales become an increasingly common foreclosure alternative.

The Charlotte, North Carolina-based bank approved 5,276 short sales in January, topping JPMorgan Chase & Co. (JPM), with 2,976, and Wells Fargo & Co. (WFC), the biggest home-loan originator, with 2,788, according to a report today by RealtyTrac Inc. The total number of U.S. short sales, in which properties are bought for less than what’s owed on them, rose 33 percent from a year earlier in January, the latest month for which figures are available, and is expected to set a record this year, the Irvine, California-based data provider said.

“Bank of America has done almost as many as numbers two and three combined,” Charlie Engel, a RealtyTrac vice president, said in an online presentation today. “Combine the top three and you’re looking at the vast majority of short sales right now.”

Lenders are trying to cut mortgage losses as home values are down by a third from their July 2006 peak and almost 12 percent of borrowers are delinquent or in foreclosure, according to the Mortgage Bankers Association. Short sales may reach a record this year, with about 12.5 million homeowners owing at least 25 percent more than their properties are worth, RealtyTrac said.

“Even if these homeowners aren’t struggling to make mortgage payments and therefore are at low risk for foreclosure, if they need to sell sometime in the next five years it’s likely they’ll need to sell via short sale,” the firm said.

Rising Short Sales

The growing number of short sales, which don’t entail a lengthy foreclosure process, is a sign that the U.S. is working through its inventory of distressed properties, according to Lender Processing Services Inc. (LPS) The number of short sales surpassed foreclosure deals for the first time in November, a trend that continued in December and January, according to data from the Jacksonville, Florida-based company.

RealtyTrac, which counted only short sales that occurred after a notice of default, reported that foreclosure sales outnumbered short sales by about 2,600 in January. While lenders usually require short sellers to demonstrate hardship, such as inability to pay or the need to relocate for work, they don’t always file default notices.

Bank of America

Bank of America, which reports all short sales including those without a default, completed 10,447 in January -- almost double the number reported by RealtyTrac -- 10,051 in February, and 10,600 in March, said Rick Simon, a spokesman for the company. In the first quarter, Bank of America also had 3,100 deeds in lieu of foreclosure, in which borrowers surrender their properties prior to seizure, he said.

“Bank of America is placing some emphasis on short sales and deeds-in-lieu as a preferred alternative to foreclosure,” Simon said in an e-mail today. “We have been testing a short sale incentive payment program in Florida for several months.”

The company, which cut back on originating mortgages after its 2008 takeover of Countrywide Financial Corp. saddled it with more than $40 billion in costs, today reported a first-quarter profit that beat analysts’ estimates.

Wells Fargo, based in San Francisco, surpassed Bank of America in the fourth quarter of last year to become the largest U.S. mortgage servicer. It became the biggest originator of home loans in 2009, according to data compiled by Bloomberg.

‘Below Industry Averages’

“Our short-sale activity is consistent with our delinquency and foreclosure rates, which have been below industry averages,” Tom Goyda, a Wells Fargo spokesman, said in an e-mail today.

Amy Bonitatibus, a spokeswoman for New York-based JPMorgan Chase, declined to comment.

It took an average of 403 days after a notice of default for Bank of America to complete a short sale, according to RealtyTrac. That’s more than twice as long as the 193-day average for mortgages controlled by government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC) and the Federal Housing Administration.

As part of an effort to expedite short sales, loan servicers will be required to respond to offers on homes that have government-sponsored mortgages within 30 days and approve or deny them within 60 days, the Federal Housing Finance Agency announced on April 17.

Average Sale Price

The average U.S. short sale price was $174,120 in January, a 21 percent discount compared with non-distressed sales, according to RealtyTrac. Discounts averaged 17 percent a year earlier, when a third fewer short sales occurred. After a foreclosure, homes sold for an average of $145,597, 34 percent less than non-distressed properties.

The number of U.S. short sales peaked at 128,000 in the first quarter of 2009 then plunged after President Barack Obama promoted loan-modification programs to help reduce foreclosures, according to RealtyTrac. Short sales probably exceeded 105,000 in the first quarter, the company said.

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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