short sale, home foreclosuresOn NBC news this morning they talked about some anecdotes about how banks are holding off on approving short sales because they are waiting to see how the massive Wall Street bailout works out. It seems that banks think that they may be better off holding home foreclosures at a loss for a while instead of approving a short sale which would get the asset off their books immediately. This is bad news for home buyers because it would keep them from getting a great deal on a resale home whose owners are selling it at a discount, and equally bad news for home sellers who might get stuck having to go into foreclosure instead of doing a short sale.

It is much better in terms of credit ratings to sell the home as a short sale instead of forfeiting the property to the bank as a foreclosure. A short sale is a small ding on the credit report, but a foreclosure is a serious black mark. People have been making arrangements with their banks to sell the home for less than the mortgage amount, and up until now, mortgage lenders have been willing to accept that. Now the promise of a bailout for bad loans is making banks hesitate, because they might stand to gain more money from the bailout than the short sale.