Throughout 2011, while negotiations between banks and the 50 state’s attorneys general dragged on, foreclosures slowed to a trickle. But the doomsayers were out in force all the while, warning that delinquent loans were silently piling up like snow on mountain peaks – and that when the deal was finally signed, the snowballs would start rolling downhill again.

But a new report from the group assigned to oversee the settlement finally puts some numbers behind what many agents have been saying all spring – that the feared avalanche of foreclosures may instead be melting away, in the form of short sales.

Short sales can be harder to track then other forms of distressed sales – like the hairdresser in the old Clairol ads, only the lender and the homeowners know for sure when a sale is a short sale, since there’s no legal or public document to file when a lender approves a short deal.

The report from The Office of Mortgage Settlement Oversight – helmed by Joseph A. Smith, monitor – helps shine a rare spotlight on the numbers. Of the more than $10 billion in relief the banks have handed out so far, $8.7 billion has come in the form of completed short sales, with another $749.4 million coming in principal forgiveness on first liens and $231.4 million by forgiving or extinguishing second liens.

The numbers for Massachusetts echo those trends: Of a total of $103.1 million in relief given to the commonwealth’s homeowners, $72.6 million has come in the form of short sales for 759 homeowners. The rest includes $11.8 million in first lien principal forgiveness for 124 homeowners and $5.4 million in second lien modifications and forgiveness for 112 homeowners.

And that emphasis on shorts is thinning the local foreclosure pipeline.  

More Agreeable

Data provided by The Warren Group, publisher of Banker & Tradesman, shows that foreclosure petitions – the first step in the foreclosure process – have increased over last year. Given that so many of the big banks’ pipelines were essentially shut down through much of the year, that may not be all that surprising.

What may be surprising is that, excluding 2011, the 8,459 petitions filed through July this year represent the lowest level since 2006, when the housing crisis was barely getting started and most foreclosures were confined to the subprime market.
Those with boots on the ground said they are seeing the effect.

“The lenders, in a general sense, seem much more agreeable to getting a short sale done and the process is speeding up,” said Peter Ruffini, regional vice president for Jack Conway, Realtor. “[Though] there’s still not enough people on the bank side of things handling these, which leads to a lot of frustration.”

“Over all, we’re seeing things move a bit faster, though I wouldn’t say it’s just because of the settlement,” said Anthony Lamacchia, co-broker/owner of McGeough LaMacchia Realty in Waltham, whose firm has handled scores of shorts. “In the last six months, banks are definitely pushing people to do shorts more than they were.”

Left Hand, Right Hand

And lenders have every incentive to continue pushing short sales – especially the five largest servicers, who are signatories to the agreement. For them, each short sale completed counts toward the relief they’re obligated to provide. And unlike modifications, short sales can’t re-default in future, meaning they often take less work and are less risky than modifications.

Some consumer groups are already complaining that the big servicers are too well-incentivized to complete shorts instead of modifications, since the overall goal of the settlement was to keep people in their homes by whatever means necessary.

A spokesman for Attorney General Martha Coakley said the true impact of the settlement may actually be bigger, since many of the loan modification efforts undertaken by these banks take longer than three months to implement, and so won’t show up until the monitor presents its next update in November.

But the push for shorts hasn’t entirely eliminated the specter of foreclosures. Cases still crop up of the bank’s left hand not knowing what the right is doing.
“The foreclosure departments are still acting independently and trying to foreclose as fast as possible, although the short sale departments are still doing better at processing,” said Lamacchia.

Lamacchia said he was recently in the throes of just such a deal.

“[A lender] approved the short sale [August 30], and they gave us until [Sept. 5] to close, and they said, ‘if you don’t close, we’ll foreclose on September 7’,” said Lamacchia. “And here we are, we’ve got an all-cash buyer, no contingencies – but he can’t close for two weeks because he’s out of the country.”

“They wouldn’t extend,” he sighed. “Why they do that, I’ll never understand.”  
But overall, the pressure may be easing. “If we can give them what they want, the systems are in place to get them through [and have the deals] go a lot smoother,” said Jim Black, a Keller Williams agent in Worcester.