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With the foreclosure process stalled, JPMorgan (JPM) turned to short sales, using those on 61%...
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Monday, April 23, 2012, 12:02 PM ETWith the foreclosure process stalled, JPMorgan (JPM) turned to short sales, using those on 61% of its delinquent mortgage liquidations in 2011. The result was a good one: the bank says the short sales resulted in an average 56% loan loss vs. 71% on REO sales.
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Take the following example, A person is loaned 400K for 30 years at 5.5% interest starting 1996.
After 15 years they default and the outstanding balance remaining is 250K. A 56% write down on 250K is 140K so 110K is the sale price of the property.
Now take into account the payments made on the house for the first 15 years. 400K at 5.5% represents a monthly payment of $2,476 per month. For 15 years the principle paid for this was 149K and the interest paid was 243K. All told they received 392K against a 400K loan. Now they receive a one time settlement payoff of 110K and wrote off 140K as bad debt.
So for a recap they loaned 400K
Principle paid 149K
Interest paid 243K
Settlement 110K
Total paid 502K
I am sure there are examples this does not work this way, but, you have to take into account everything not just the balance due. And a 5.5% interest rate back then was not offered it was higher, so the interest was higher...