Million Dollar Short Sales on the Rise

An interesting article from Bloomberg News was carried locally in the Detroit Free Press over the holidays, that I thought was worth sharing. Many people with a moderate understanding of short sales, typically assume the homes involved carry a value that would be found on the lower end of the pricing spectrum. Not so. As the article mentions, "Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate...".

We've seen it for awhile now - especially from clients in Las Vegas and Northern California - where it's not uncommon for someone to owe upwards of a million dollars on a home, only to see it appraise at around $400k. Or less.

There is a general belief, and this article touches on it, that we're only seeing the tip of the high-end short sale iceberg. Many million dollar and up homeowners refinanced in 2005 and 2006, with a large number going with various ARM products. A lot of those loans will re-set this year and next. As the article cites, the median U.S. home price is down 25% from it's peak in July 2006. With prices still predicted to drop 10% nationally over the next year, what will happen with those adjusting ARM's? For the majority, re-financing won't be an option, since the homes are now likely worth far less than what they were when the loans were originally taken out. Factor in rising unemployment and I think you'll find a lot of these homeowners coming down to two decisions - strategic default or short sale.

Some more interesting stats from the article:

- "Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3% on loans less than $250,000 and 7.4% on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, Calif.-based research firm. The rate for mortgages above $1 million was 4.7% a year earlier."

- "Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn't break out short sales by size of mortgage."