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JPMorgan Chase has started a Short Sale Outreach Program which they are offering to mortgagors whose mortgages are owned by Chase. Chase is offering up to $30,000 to people who are behind on their mortgages, to try to convince them to short sale the property, rather than letting the property foreclose. To be offered this deal though, the mortgage must be owned by Chase, not just serviced by them.

Why would they be aggressive with mortgages they own as opposed to ones they service? The answer is money, of course. The holder of the mortgage usually loses a huge amount of money if the property goes into foreclosure because of interest lost, real estate taxes and legal fees that have to be paid and association dues owed. Throw in deterioration to the property and the loss in overall value, and lenders are lucky to get back 50% of the money owed on any foreclosure. The numbers for a short sale are much lower and so they realize that it would be much cheaper to pay the delinquent homeowner to get out, rather than go through the entire foreclosure process.

On the other hand, if they service a loan, the bank doing the servicing actually gets paid a percentage (usually .25%) of the principal balance of the loan, to take in the monthly payments and distribute the money (taxes, insurance, interest, principal). That percentage can actually double when a loan becomes delinquent, meaning the longer a property remains delinquent, the more money they earn. All in all though, if more programs like this were offered, the real estate industry could possibly recover at a much faster rate.


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