In addition, some banks estimate that they are able to cut their losses in foreclosure as opposed to short sales, particularly in mortgages guaranteed by government agencies like Fannie Mae, Freddie Mac or the Federal Housing Administration.

In Florida, real estate professional Peter Murphy said that despite much higher price offers from buyers interested in short sales, lenders still foreclose on the desired properties, even if the foreclosure prices are much lower than the short sale offers.

Murphy added that last year, properties sold in short sales were priced at $68 per square foot while real estate owned properties were priced at a much lower price of $55 per square foot.

He also added that in order for home prices to stabilize, banks must approve more short sales to preserve prices. He explained that while bank owned homes are being sold at around 54 percent of conventional sale prices, short sales can be closed at about 80 percent of conventional sale price levels.

However, despite the record number of distressed homeowners asking permission for short sales from financial companies, these requests are not being addressed. Typically, banks take an average of 298 days to complete a short sale, but when they foreclose, they complete the process quickly, just slowing the process a little to comply with foreclosure laws, according to realtors in Florida.

The case of Texas homeowner Chandra Persaud is illustrative of the attitude of banks toward distressed sales. At the time Persaud was in default on her loan, she still owned $295,000 on the $350,000 she borrowed in 2005.

She negotiated a short sale offer of $240,000 in cash with her lender Bank of America, but to her frustration, the bank still pursued foreclosure action on the property and sold it later for only $205,000, an amount $35,000 lower than her cash short sale offer.

According to Bank of America spokesperson Rick Simon, short sales require complex transactions and take a long time to carry out. They also involve several parties, such as agents, sellers, buyers, servicers, investors, insurers and subordinate lien owners.

Financial companies recognize short sales as a tool to prevent foreclosure, according to Simon, but short sales consume a lot of time and effort particularly in an environment of high volumes of distressed properties.

Financial Companies Choosing Foreclosures over Short Sales is a post from: Mortgage News | Refinancing Articles

In interviews and in speeches delivered in various places of the country, the president and his advisers have been expressing their disappointment with the big banks they have helped when they were about to collapse. The banks, led by the American Bankers Association and the Financial Services Roundtable, have been campaigning against the administration’s Consumer Financial Protection Agency proposal.

Last week in San Francisco, Obama told his audience at a fundraiser for the Democratic Party that financial laws need to be made stronger to prevent banks and other financial firms from playing with the system and hurting ordinary Americans.

Lawrence Summers, head of the National Economic Council, reiterated Obama’s call when he spoke in New York at a meeting held by The Economist. He said that every financial institution existing in the U.S. has benefited from taxpayer money directly or indirectly.

On talk shows, several Obama advisers all pointed out the need for banks and other financial services providers to support the revamp of financial industry laws. Senior adviser David Axelrod talked about the need for banks to increase their lending while Chief of Staff Rahm Emanuel talked about his frustration at banks that do not understand the need to prevent another crisis from happening.

In response, the top executives of the large banks explained their position. Lloyd Blankfein, CEO and chairman of Goldman Sachs, said he did not expect that the government funds his firm received included a kind of pressure. Goldman Sachs has already repaid the $10 billion it has received from the government last year.

Jamie Dimon, CEO and chairman of JPMorgan, said in a letter read by his spokesperson that financial policies should be based on a thorough examination of the crisis and not on political agendas. JPMorgan has also repaid the $25 billion it has received from the Treasury.

Citigroup and Bank of America received $45 billion each last year and have not repaid. While Goldman Sachs and JPMorgan announced profits in the third quarter, BofA announced a loss of $1 billion during the quarter.

On the whole, what the Obama administration is expecting from financial services providers is to give back what is due the taxpayers that bailed them out during the crisis by supporting legislation that protects taxpayers.

Financial Services Providers Pressed to Back Legislation is a post from: Mortgage News | Refinancing Articles