“We do a lot of short sales where there truly is not a financial distress, but there may be a willingness on the part of the seller to walk away from that home,” Hirsh said.
Twelve million borrowers nationwide currently owe more on their mortgages than their homes are worth, according to John Burns Real Estate Consulting, with just about half of those borrowers still current on their payments. Negative equity puts borrowers at greater risk of walking away from their homes, according to several government studies. Short sales would therefore save the banks money by averting foreclosures by walkaways.
But is that the real purpose of a short sale? Some say the banks are to blame for the housing crash and mass home-price depreciation, and therefore they should pay for all of our losses. Others blame borrowers for playing loose with credit and buying far more than they could afford, using their homes as ATMs and turning a blind eye to the fact that home prices can go down as well as up. Are short sales the compromise? The bank loses money and the owner loses the home without the credit hit? Everybody loses?
I was about to buy that compromise, until Hirsh told me about some of his clients. They are short-selling their homes and turning right back around and buying new homes — and here’s the clincher: they’re getting mortgages. One is even building a new home!
These borrowers have the wherewithal to make their monthly payments on their underwater homes but choose not to, because they know they won’t make their equity back any time soon. They also see that they can now buy more home for less money, given how low home prices have fallen. They can get in at the bottom, rather than pay what amounts to rent on their current homes. In other words, they’re in a position to make more money by walking away from their debt and letting their lender eat the loss.
I’m no bank apologist, but is that fair? You tell me.
Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick