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Short sales in 30 days?

By Polyana da Costa · Bankrate.com
Thursday, April 19, 2012
Posted: 4 pm ET

More than four years into the housing crisis, the powers that be finally have created new rules to make the short sale process easier and speedier.

Starting in June, mortgage servicers will no longer take months or years to respond to a short sale request, if they follow the new guidelines released by the Federal Housing Finance Agency.

The rules apply to loans owned or backed by Fannie Mae and Freddie Mac, which account for more than half of the outstanding mortgages in the United States.

In a short sale, the lender allows the borrower to sell the house for less than what is owed on the mortgage. Short sales are a great alternative to foreclosure when they work.  Because of the frustration of dealing with lender delays, many borrowers give up on the process.

But that could change when the new guidelines go into effect as servicers will be required to:

  • Acknowledge receipt of short sale offers within three business days.
  • Review and respond to short sale request within 30 days after they receive the offer and the borrower's request.
  • Update borrowers weekly if the offer is still under review after the 30-day period.
  • Make a final decision on the offer by no later than 60 days after the offer and borrower's request are received.

A couple of months ago, I told you the FHFA was on a mission to make short sales more attractive to borrowers and lenders. This is the first step the agency has taken since then.

It says it will announce additional enhancements to simplify the short sale process by the end of the year.

The changes are key to the housing recovery, says the National Association of Realtors.

"NAR knows that delays in approving short sale requests remain a significant challenge for Realtors and consumers and often result in canceled contracts and the property going into foreclosure," says NAR president Moe Veissi.

But more is needed.

"While these new guidelines will hopefully help close short sale transactions at higher rates, we believe legislation is still needed to impose mandatory deadlines on all loan servicers," Veissi says.

Do you think servicers will become efficient in processing short sales?

Follow me on Twitter @Polyanad

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5 Comments
Polyana
April 20, 2012 at 11:26 am

Malcolm,

Let's get the basic facts straight first. Polyana (with one N) da (not de) Costa IS my name. Is Malcolm your real name or is that your username?

'Short sale in 30 days?' is the headline to a blog, not my "comment." Please note the question mark. I'm not stating it's possible to get a short sale in 30 days.

Now that we're clear on this, let's go over your other questions.

So how will this shorten the process time? you ask.
Fannie Mae and Freddie Mac will instruct servicers to respond to short sale offers within the timeframes I described above. The servicers have investors' guidelines on what they can and can't approve. Fannie and Freddie may have the final word on the short sale but, again, if they are instructing servicers to respond within 30 to 60 days, don't you think that implies that Fannie and Freddie will also have to reply to servicers within the specified period?

As for the hardship issue you bring up, yes, under HAFA, the seller must show hardship. But there a short sales outside of HAFA that do not necessarily require proof of hardship. It's up to the investor to approve it or reject it. Investors are less likely to approve a short sale without a hardship letter, but it's not impossible. Plus, hardship goes beyond not being able to afford the payments. For example, some people have to move because of job transfers.

As for your last question on how the new rules affect the points you made here (although some of your points are inaccurate) the answer is: it doesn’t affect whether the short sale will be approved or rejected, which is what you seem to be debating here. The guidelines simply specify shorter timeframes to make the process quicker. I never said the investors and servicers will APPROVE a short sale within the new timeframe. I said, according to the new rules, they must RESPOND within the specified period. That will avoid frustrating situations where buyer and seller waste months waiting for an answer, only to be told the short sale was rejected.

I hope I have addressed your concerns.

Breezinthru
April 19, 2012 at 11:15 pm

If Freddie and Fanny are willing to accept short sales at fair market value, they should be also willing to refinance the current owner who has never missed a payment with principal reductions to fair market value.

The effect on Freddie and Fannie's losses is essentially the same... and it's not the current owners fault that the property is suddenly worth so much less. Give the current owners a chance to start rebuilding the equity they lost so they have a reason to not walk away.

Malcolm McLean
April 19, 2012 at 8:08 pm

@Polyanna de costa (why do you hide behind a fake user name)

So how will this shorten the process time?

a) The servicer is just a debt collector - and has to submit the short sale to the investor.

b) It is the investor - Fannie or Freddie that decide if they will approve the short sale?

So the servicer has to wait for the investor to respond!

Q: Explain how that will shorten the process?

1. If the seller can afford the home - and has kept up the payments - and only wants to sell it because it has no equity and lost value so they want to sell at the lenders/investors loss - then the short sale will be rejected.

2. The seller has to qualify for a short sale - it is not a good enough reason for the investor to giveaway maybe hundreds of thousands of dollars - when the borrower can still afford the payments.

3. A short sale submission to the investor via the servicer has to make a very strong case as to why they want to short sale the home, and their hardship.

4. If there only 'hardship' is that the value has gone down, but there income is still the same - then that is not a 'hardship' - they can still affords the loan.

5. If they have gone through a failed loan modification Fannie or Freddie will suggest they go through HAFA and set a pr-approved short sale amount.

6. Also if the short sale offer is below 10% of the current market price of the home - compared to recent sales, the offer will be rejected.

So I don't understand your comment (who ever you are) 'short sale in 30 days?'

Can you please explain how the new law effects the above situations?