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]