Pipeline

Suspicious Minds

Lenders have long had their suspicions about the short sale process. Often they incur unnecessary losses when properties obtained at bargain basement prices by straw buyers are then flipped for a substantial profit by unscrupulous businessmen.

Now a new study by CoreLogic has quantified such suspicious short sale activity.

Approximately one in every 52 short sale transactions appears "suspicious," according to the study. A transaction is deemed suspicious if the home is resold one to six months later for 10% to 40% more than the short sale price.

Many of the scammers do little to conceal their activities. According to the study, short sales that show another transaction closing on the same day account for 16% of all suspicious short sales in the industry and are on average $50,000 greater than the amount the lender agreed to sell at.

Apparently, suspicious short sales are a growth industry. Sales volume has tripled in the past two years. And with 1.7 million seriously delinquent loans in the country, researchers are predicting suspicious short sales to rise even further.

Lenders, servicers, and investors may incur losses in excess of $375 million in 2011 due to suspicious short sale activity, according to the study.

Of course, CoreLogic isn't crunching these numbers only for the good of mankind. The company offers a service, the CoreLogic Mortgage Fraud Consortium, that lets lenders share real-time data about pending and closed short sale transaction. With this technology, the vendor says, servicers and lenders can identify the malefactors and halt suspicious short sale transactions before they occur.

Driven by Distress

A significant sector of the housing market is still being driven by sales of bank-owned homes and those in some stage of foreclosure, according to a report out Thursday from Realtytrac Inc.

Sales of bank-owned homes and foreclosure properties accounted for 28% of all U.S. residential sales in the first quarter of 2011, up slightly from 27% in the fourth quarter of 2010, the report says.

Prices for foreclosed properties are dropping slightly. The average sales price for properties in some stage of default was $168, 321, down 1.89% from the fourth quarter of 2010 and down 1.46% from the first quarter of 2010.

Despite the significant amount of foreclosure sales, the large amount of foreclosures and repossessed homes still on bank balance sheets is still hampering a housing recovery, according to RealtyTrac CEO James Saccacio.

"While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties sold to third parties," Saccacio said in a press release. "While this is probably helping to keep home prices relatively stable, it is also delaying the housing recover. At the first quarter sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks' books, or in foreclosure."

Quotable …

"As a policy matter, you don't want to cut off this very important mortgage channel and burden those writing FHA loans with massive lawsuits."