Freddie Mac reported a 16% increase in short sales last year and wants to boost the use of this foreclosure alternative by increasing the fees it pays participating servicers.

"We plan to introduce additional incentives in 2012 designed to help more distressed borrowers avoid foreclosure through a short sale or deed in lieu of foreclosure transaction," Freddie says in its new 2011 annual report.

The GSE said its servicers completed 45,600 short sales, and 540 deed-in-lieu transactions in 2011 compared to 10,500 and 94 transactions, respectively, the year prior.

Short sale transactions involve multiple parties, and are more complex than foreclosure sales. A short sale allows the servicer to by-pass the foreclosure process, which can take 400 to 600 days. Short sales generally produce a higher recovery than a REO sale.

As of Dec. 31, Freddie held 60,500 REO properties on its books after completing 110,200 REO sales last year.

Freddie acquired 98,650 REO properties during 2011 and expects REO acquisitions will "remain elevated" this year.

Freddie has a large inventory of 414,100 seriously delinquent loans. Many of these mortgages will "likely complete the foreclosure process and transition to REO during 2012 as our servicers continue to work through foreclosure-related issues," the GSE says in its annual securities filing.

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