Risky Short Sales Cost Lenders $300 Million Yearly

by Stephen M. Fells on August 11, 2010

Lender Loss is Over $300 Million Annually with Over Half of All Short Sales Occurring in California, Florida, Texas and Arizona

SANTA ANA, Calif., Aug. 10 (PRNewswire-FirstCall) CoreLogic (NYSE: CLGX), a leading provider of consumer, financial and property information and business services, today announced the release of its 2010 Short Sale Research Study, a scientific, data-driven approach to analyzing mortgage short sales to identify trends, risks and opportunities for mortgage lenders. The study can be downloaded by visiting www.corelogic.com/shortsalestudy.
The estimated industry financial impact of short sale fraud is $310 million annually with the risk of ‘unnecessary losses’ occurring in one in every 53 short sale transactions. The average amount of unnecessary loss is $41,000 per short sale transaction.

“A jobless economic recovery and weak home prices are fueling short sales volume,” stated Craig Focardi, senior research director, consumer lending at The TowerGroup. “In many instances, government-sponsored or private short sale programs are a preferable alternative to foreclosure. However, important aspects of the short sale transaction are disclosure of all potential buyers to the seller and accurate home price comparables. The long duration of mortgage defaults and potential loss upon home sale mandates automation and outsourcing of technology to reduce loss and risk for lenders.”

“By definition, short sales constitute a financial loss to lenders but will continue to be a necessary part of the mortgage industry as it seeks stabilization. The primary objective for lenders is to eliminate unnecessary loss,” stated Tim Grace, senior vice president of Fraud Analytics, CoreLogic. “The best way to mitigate fraud risk and unnecessary loss is through a collaborative effort where lenders collectively share pre-closing and post-closing information. Lenders in the CoreLogic Mortgage Fraud Consortium will benefit greatly from sharing knowledge of concurrent transactions pending on short sale properties in real time.”

The results are derived from CoreLogic’s examination of a representative data sample of single family residence (SFR) short sale transactions from the past two years. The CoreLogic transaction data used for the study represents 98 percent of real estate transactions and 85 percent of mortgage financing details. This large collection of historic and current data gives CoreLogic the ability to analyze segments of transactions, such as short sales, with tremendous precision.

CoreLogic 2010 Short Sale Research Study Highlights:

• The number of short sales in the market has more than tripled since 2008 with the estimated annual volume at 400,000. Multiple variables indicate short sales will continue to be a frequent and important part of the mortgage industry.

• Over half (55.8 percent) of all short sales occur in just four states (California, Florida, Texas, and Arizona).

• Approximately four percent of short sales have a subsequent resale within 18 months.

• Investor driven short sales are not inherently bad. Investors provide the industry with necessary liquidity.

• Short sale transactions may be deemed risky to the lender when either: 1) the second sale amount is vastly higher than the short sale amount, and/or 2) the two sale transactions are executed within a very short window of time.

• Short sale fraud exists. While the exact definition of what constitutes fraud continues to evolve, CoreLogic analysis indicates lenders are consistently incurring more loss than necessary. Approximately one in every 53 (1.9 percent) short sale transactions was part of an egregious flip and therefore deemed risky.

• It is estimated that lenders are incurring unnecessary losses of $300 million in short sale transactions annually.

• Group, consortium analysis and reporting are necessary to fully leverage multiple-lender data and mitigate risk.

About CoreLogic

CoreLogic is a leading provider of consumer, financial and property information, analytics and services to business and government. The company combines public, contributory and proprietary data to develop predictive decision analytics and provide business services that bring dynamic insight and transparency to the markets it serves. CoreLogic has built the largest and most comprehensive U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. More than one million users rely on CoreLogic to assess risk, support underwriting, investment and marketing decisions, prevent fraud, and improve business performance in their daily operations. Formerly, the information solutions group of The First American Corporation, CoreLogic began trading under the ticker CLGX on the NYSE on June 2, 2010. The company, headquartered in Santa Ana, Calif., has more than 10,000 employees globally with 2009 revenues of $2 billion. For more information visit www.corelogic.com.

CoreLogic is a registered trademark of CoreLogic, Inc.
SOURCE CoreLogic, Inc.