One-third of pre-foreclosure sales fail: survey

NEW YORK (Reuters) - A third of all home sales planned to prevent foreclosure fail, due largely to sluggish response from mortgage companies that service the loans, a survey showed on Thursday.

The study of more than 3,000 real estate agents last month by Campbell Communications found it takes mortgage servicers an average of 4.5 weeks to provide answers on so-called short sales, in which the sale price is below the balance of an existing loan.

Short-sales and other pre-foreclosure sales are of increasing importance to the U.S. housing market, which is suffering from falling prices, rising defaults and high inventories. Together, the sales account for one in every five transactions nationwide, the survey said.

Foreclosures reached record heights in 2007 as risky loans made during the housing boom turned sour as home prices began to fall. The loss of homes has pushed the economy closer to recession and is the focus of myriad programs of lenders and lawmakers to stop losses to consumers and financial institutions that extended the credit.

Slow responses on short-sales from banks, such as Washington Mutual Inc and Lehman Brothers Holdings Inc's Aurora Loan Services, appear to reflect a reluctance to accept up-front losses, the survey said. Potential buyers are walking away.

"With rapidly declining prices, combined with 100 percent or greater financing, many of the sellers are so far in the hole that the mortgage companies are hesitant to accept what the market will bear, and end up forcing these would-be sellers into foreclosure," the survey said.

In addition to WaMu and Aurora, real estate agents gave low grades on response times to American Home Mortgage, whose servicer was acquired out of bankruptcy court by billionaire investor Wilbur Ross in September. Agents gave the highest marks to National City Corp and units of HSBC Holdings and Wells Fargo & Co, according to the survey.

Other reasons for failed short-sales include damage to the property, appraisals below the planned purchase price and sellers' inability to pay commissions.

Responses from mortgage servicers on sales of property that they own through foreclosures averaged less than two weeks.

(Reporting by Al Yoon; Editing by Dan Grebler)