JPMorgan Chase (JPM) completed short sales on 61% of its delinquent mortgage liquidations in 2011, the most of any servicer, according to data compiled by the bank's securities research group.
As the robo-signing freeze put a hold on the foreclosure process, the largest servicers turned to short sales over REO. By the end of last year, servicers were completing short sales on more than half of their inventory of home loans more than 60 days delinquent or in foreclosure, according to the report. In 2008, short sales took roughly 25% of all liquidations.
According to Chase analysts, short selling a property resulted in an average 56% loss on the loan, roughly 15% lower than an REO sale.
A recent story in Bloomberg detailed how short sales peaked even as a percentage of overall home sales in January.
Analysts at Chase, using the same Lender Processing Services (LPS) data, broke down which servicers were doing the most.
Even firms not involved in the robo-signing investigation from the attorneys general turned to short sales. While still under Goldman Sachs (GS) ownership, 43% of Litton Loan Servicing liquidations were short sales, followed by 43% at IndyMac and 39% of American Home Mortgage Servicing, according to the report.
Ocwen Financial Services (OCN) used short sales the least, completing them on roughly 25% liquidations, because the company was geared more toward modificaitons and REO, according to the analysts.
Fannie Mae and Freddie Mac will hold servicers to stricter short sale timelines beginning in June. The AGs and federal prosecutors installed similar short sale standards in the $25 billion foreclosure settlement as well. A recent report from RealtyTrac showed 2012 could lead to even more short sales.
Chase analysts project servicers will have to liquidate roughly 2 million loans either through short sale or REO every year for the foreseeable future.
"Given that liquidation is inevitable for so many borrowers, investors in distressed assets should look to servicers who are more aggressive about pursuing short sales, where severities are lower," analysts said in the report. "In general, there has been a trend of increasing short sales, and the percentage of all liquidations that goes through short sales is over 45% now."