I have noticed that the percent of foreclosures has been dropping recently and the percent of short sales has been rising.  Now, we have a possible explanation.  It turns out that the big banks, as part of a settlement are required to provide either principle reduction or allow short sales.  The banks get credit for either.  So they are offering as many short sales as allowable per the agreement.

In some ways, this is good.  Families can get out of their debt burden without the massive credit hit that foreclosures would cause.  But I’m pretty sure the spirit of the settlement was to keep as many homeowners in their house as possible and the missed mortgage payments have already hurt their credit rating.  Plus, they will still need to find a place to live after the short sale.  So, in the end, it’s just more of the same.  As they say, banks will be banks.