Barclays Advocates Short Sales to Lower Loss Severities

With vacant homes stretching the capacity of banks' balance sheets and homebuyer demand lackluster at best, short sales are becoming a top loss mitigation choice for private lenders and investors, particularly in especially hard-hit markets.

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According to ""Barclays Capital"":http://www.barcap.com, the benefits of pursuing a short sale are compelling for servicers and investors who are able to liquidate delinquent loans in an expedited fashion with fewer payment and interest (P&I) advances and who take ""quasi"" possession of the property in better condition and at better prices than REO, lowering severities.

Barclays' analysts say they've found much of the reduction in severities from utilizing a short sale over an REO sale are explained by better composition and trimmed timelines. While the discount stemming from the stigma associated with an REO due to upkeep and vacancy still plays a role, it accounts for only about 30-40 percent of the severity difference, they explain.