Short Sale VS. REO, which one benefits the lender?

Worsening Mortgage Performance
With U.S. subprime mortgage performance deteriorating markedly over the last several months, Fitch Ratings has adjusted its subprime RMBS loss projections accordingly.
     Fitch attributes this deterioration to accelerating home price declines, which are in part due to the dramatic contraction in the mortgage origination and securitization markets. Fitch has also increased its loss expectations for U.S. subprime RMBS backed predominately by first-lien mortgages originated in 2006 and the first half of 2007.
     The average cumulative loss expectations, as a percentage of the initial securitized balance, are now 21% and 26%, respectively. Accordingly, Fitch has placed approximately $139 billion, of 2006 and 2007 subprime RMBS (comprised of 2,972 rated classes) on rating watch negative.
     Fitch's new loss expectations are based on projection of three major variables, including the percentage of delinquent loans that are expected to default, the percentage of currently performing loans that are expected to default, and the severity of loss upon liquidation of defaulted loans.
     Mortgage performance in each of these areas has deteriorated. The contraction in the mortgage markets has contributed to an acceleration and deepening of home price declines, and has eliminated the option to sell or refinance among loans that have been current on payments. The combined impact leads to default expectations for the remaining balance of the 2006 and 2007 mortgage pools of 49% and 43% respectively. The loss severity expectation, reflecting Fitch's projection of additional national home price declines of 22% over the next five years, are 58% for 2006 loans and 64% for 2007.

In response to the subprime mortgage crisis, the board of The New York Times Neediest Cases Fund has created a special program, to which it will contribute $1 million, to help a hundred New York families relocate safely over the coming months. The new Subprime Neediest Program will be administered by The New York Times Company Foundation and the children's Aid Society. The grants will offer emergency assistance, like moving costs, a first month's rent and security deposit, when families face eviction and have no other resources. The grants will be avaliable both to those facing imminent foreclosure on their own residences and to unwitting tenants whose landlords face such a threat.