The bulk of it, $30 million, went to short sales. But banks were doing short sales before the settlement. They’ve picked up the pace this year, but it’s not clear if the settlement was part of the reason.
Banks often save money on short sales. They save the cost of foreclosing and maintaining an empty house. That house usually sells for more in a short sale than in a foreclosure.
In metro St. Louis, for instance, short sale homes sell at a 30 percent discount to similar homes. Foreclosed hopes go at a 40 percent discount, according to figures from RealtyTrac. If the home can attract a decent offer on the market, it’s clearly in the bank’s interest to accept a short sale rather than foreclose.
Troubled homeowners prefer short sales because the banks generally forgive the remaining debt – the difference between the sale price and the amount owed on the mortgage. The $30 million from the settlement represents that forgiven debt.
That raises the question: Would the banks have forgiven that debt even without the settlement? Have banks found a nifty way to reduce the amount $25 billion they agreed to pay to settle the suit over their foreclosure practices?
The figures are similar across the nation. At least 60 percent of the money is supposed to go to homeowner relief. But the bulk of that is going for short sales.
In Missouri, 6.6 million has gone to principal reduction on mortgages, and $1.2 million was in mortgage refinancing, according to Attorney General Chris Koster’s figures. Another $7.7 million went to other, unspecified consumer relief. Koster said another $28 million was in the process of being provided to Missouri borrowers as of June 30.
The settlement was reached between five giant banks, the federal government and state attorneys general.