New Guidelines Aim To Make Short Sales Less Of A Pain In The Butt To Everyone

Short sales now account for nearly 1-in-11 home sales in the U.S., so there’s a decent chance that anyone who has been house-shopping recently has visited a for-sale property only to have the realtor say, “Now I have to warn you, it is a short sale.” At this point, many of you would go running for the hills rather than be stuck in bank-approval muck for months. But new guidelines issued by the Federal Housing Finance Agency are aimed at speeding up the process.

One of the bigger speed bumps to streamlining short sales is that not only does the mortgage holder have to approve the deal, but so does any lender that holds a home-equity loan or similar second mortgage. Because the holders of second mortgages generally don’t have the right of foreclosure, this may be their only chance to get repaid. Thus, they will try to negotiate as high a portion of the short sale as they can get.

This haggling can drag on for months, leaving underwater homeowners to continue making too-high mortgage payments while buyers are left in a holding pattern, waiting for the lenders to possibly just say no to the entire deal.

FHFA hopes to put an end to the interminable back-and-forth for Freddie Mac and Fannie Mae-guaranteed mortgages by offering a maximum of $6,000 to these second mortgage holders for expediting the process.

Among the other guidelines [PDF], which kick in Nov. 1, intended to help move short sales along:
• Fewer documents will be required for homeowners who have missed payments and have low credit scores to demonstrate need for a short sale.

• Homeowners who are current on their payments but have experienced particular hardships — lost job, divorce, death in the family or job relocation — will be eligible for expedited review.

• Offer special treatment for military personnel with Permanent Change of Station orders. Service members who are being relocated will be automatically eligible for short sales, even if they are current on their existing
mortgages, and will be under no obligation to contribute funds to cover the shortfall between the outstanding loan balance and the sales price on their homes.

‘Short Sales’ to Get a Boost [WSJ.com]

Comments

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  1. Pagan wants a +1 button says:

    Question: Does “expedited review” mean they get bumped to the front of the line, thereby bumping back every sale that was already in process?

  2. Blueskylaw says:

    “New Guidelines Aim To Make Short Sales Less Of A Pain In The Butt To Everyone”

    1). A condition of the banks bailout was that they would start lending to consumers again – instead, they used the money to buy other banks and get bigger.

    2). Laws were passed that were supposed to help homeowners refinance their homes – the banks hoarded the money instead.

    3). Interest free loans were given to banks in order for them to start lending to businesses – instead they took that free money and LOANED IT BACK to the government collecting risk free interest on them.

    Everyone here who believes that short sales will become less of a pain for the average consumer, please raise your hands now.

  3. AtlantaCPA says:

    It would seem that a second mortgage holder should just get the same proportion as the first mortgage holder, end of story. Why they are able to negotiate a different slice is beyond me. Really, why they have any say in the whole sale at all if they don’t have the right to foreclose is beyond me.

  4. Steevo says:

    With no penalties whatsoever for bank or lenders failures to cooperate. Fat chance.

    If they would set this as the standard, it would work out:
    1. Bank is presented with short sale proposal.
    2. Bank can accept the proposal within 3 working days to the second to respond.
    3. If bank fails to respond to the second to a valid proposal buyer and seller can go to court and if they can prove they made a valid proposal and the bank either didn’t respond or was late, the judge accepts the proposal and the bank is ordered so.
    4. If the bank turns down proposal buyer and seller can go to court and ask the judge to rule on the proposal. The bank can appear but has very limited rights to file pleadings in the case. It cannot drag on past that one hearing.

    Is this a complete cramdown on the banks? Yeah, it is. It’ll never happen.

    • Die Schwarze Ewigkeit says:

      I like you ideas, but I think you’d need to be a bit more reasonable as to the timeframe. Let’s make it two working weeks and you have a deal. Banks can’t even clear checks in 3 days let alone figure out whether a short sale proposal is realistic or not in that time.

      They’ve got to assign the case to someone, they’ve got to read it over and see if it’s outright stupid, crunch the numbers on the mortgage(s), schedule and complete an appraisal, figure out how much they could get in a foreclosure, find out how long it might take to auction, how much they’d lose having to pay property taxes and upkeep, finally taking it to the powers that be and explain to them that the short sale package would cause a smaller red ink smear on the books than a foreclosure.

      It’s entirely true that many banks move waaaaay too slowly on this stuff and should move faster. However, you’ve got to give a pretty large group of people time to do their work. It’s also worth mentioning that the primary focus for this guidance seems to be making it easier for sellers to short sell by reducing the hurtles they need to jump just to qualify for one and a bit easier to get junior lienholders to bite. It’s also going to increase the number of short sales out there, further gumming the system up.

      I can speak to this directly…I’m currently working on buying a house in a short sale. I’ve been at it since the end of May and still don’t have a closing date. I just found out yesterday that the bank has had the place appraised, so things are moving. But it really sucks. If it were a normal sale, I’d have been in the place for more than a month already.

  5. PragmaticGuy says:

    Anybody who has a mortgage on a property has the right to foreclose. Years ago my HELOC was bigger than my first mortgage. The problem is that the 2nd mortgage still has to pay off the first and the first would probably fight it in court if that mortgage was up to date. Now if the 2nd mortgage was what put the homeowner into financial straits maybe they shouldn’t get anything since they were the cause of the problem but $6,000 is better than nothing.

  6. BurtReynolds says:

    I really wish I just went and bought some kick ass place 5 years ago when I made no money. I’d probably be living there right now, not paying the mortgage, and waiting to get kicked out for the next year. Then maybe something would come along to bail me out.

    Instead, I sit in the house my wife bought before we got married that we can easily afford, and where there have been multiple short sales and foreclosures, screwing any chance we have of getting a decent price for this place in the next few years.

    • Cor Aquilonis says:

      Here’s your prize for Good Citizenship and Wise Choices: two fabulous credit reports, a life without debt-related drama, a comfortable home, relationships free from debt stressors, and smug moral superiority.

      Now, isn’t that better than: living “rent-free” for a couple years, being crapped on by neighbors and society for making one bad decision, having the constant terror that the Sheriff could throw your family and your belongings to the street at any time, having your relationship with your s/o strained by money issues, being unable to move for jobs since you can’t sell your current home, and having an utterly destroyed credit report (good luck finding an apartment!)?

      Careful what you wish for.

  7. lauren6318 says:

    This already seems to be effectively in place. Our lender, sovereign bank, could not offer more than $6k to the 2nd mortgage holder. the 2nd mortgage holder would not take less less than $10k and short sale has been stalled for 6 months. we’ve been under contract since dec 2010. thats right – dec 2010. freddic mac owns the loan and soverign originated it and services it.