From NMN:

It has been mind-blowing to find out that lenders and servicers have been offering defaulted borrowers up to $45,000 to work with them in a variation on the old Cash for Keys program.

But sessions at the recent SourceMedia Loss Mitigation Conference in Dallas made this development more understandable.

It used to be that lenders might pay a borrower to leave the property. This was called Cash for Keys and generally involved a payment of $2,000 or $2,500, something to allow the borrower to get a lease on an apartment to move into.

Nowadays, with people staying in homes for years after defaulting, it takes a lot more than $2,500 to get borrowers to leave. But the much higher payments aren’t wholly the result of calculation on the borrowers’ part.

Nowadays such programs are called Cash for Cooperation. The idea is to get the borrower’s cooperation in disposing of the property as quickly as possible, such as through a short sale. The borrower lists the property promptly and acts as a kind of property manager through the process. When the sale is made, she gets her check from the lender and moves on with her life (hopefully not using it as a downpayment on another mortgage!).

It’s good, though, that the lender and the borrower are cooperating to dispose of the property quickly and with the minimum amount of disruption. Lenders benefit by having their costs lowered. Attendees of the meeting heard that recoveries are at least $25,000 more on a short sale and in some cases over $50,000. Obviously these are properties that are still worth a fair amount despite their default status.

Attendees heard from Daren Blomquist, vice president at RealtyTrac, that short sales have nearly overtaken REO. In the first quarter of 2012, he said, there were 123,778 REO sales and 109,521 short sales, a boost of 25%. Short sales outnumbered REO sales in 12 states.

Prices, however, dropped 10% to the lowest since 2005. Short sales closed an average of 319 days after the foreclosure start, he said (that was as of the second quarter of this year).

Some of the states with the biggest percentage jumps in short sales include Kentucky, Delaware, Connecticut and Rhode Island.

Of the 8.5 million foreclosure starts since the beginning of the housing crisis, REO still commanded 49% of the market, to 20% for short sales, RealtyTrac data show.

It’s clear, though, that the preforeclosure solution is the one lenders and borrowers prefer.

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