Why banks do short sales?

Also, if Bank C lends to Bank A, the interest rate will be higher than the interest rate Bank B receives because Bank A lends more recklessly so it is a risk for Bank C to lend to Bank A more than to Bank B.

Therefore, having many foreclosures on the financial books looks bad for the bank and greatly affect the bank's borrowing ability. That's why banks always try to get rid of foreclosures from  their books before they go to borrow money from bigger banks.

Reason #4 why banks do short sales - Banks' quarterly reports

Banks have quarterly reports that they need to prepare to present to shareholders. Quarterly reports are done every three months such as in March, June, September, and December. These quarterly reports tell the bank's shareholders what is going on in the bank, how much money has been made, the number of good loans and the number of bad loans, etc..

One of the thing banking analysts look for in banks' quarterly reports is how high the foreclosure ratio is. If the foreclosure ratio is high, shareholders get worried and the bank's share price may drop. One thing is sure in the stock market is that banks do not want to worry shareholders and they do not want banking analysts to write bad about them because that too could make their share prices go through a free fall.

Why banks do short sales? - conclusion

These four reasons are key reasons why banks do short sales. If banks don't do short sales, then they will more likely to lose even more money in the long or short run. Banks are not in business to make money off of real estate. Banks make money by lending money out. They need to be able to borrow at a low interest rates and be able to access the money they have in order to lend out to the public. Real estate short sales, therefore, benefit the homeowner, the real estate investor, and also the bank.