Is The Short-Sale Nightmare Finally Coming To An End?

It’s been a long-standing complaint from home buyers, sellers and real-estate agents alike. Banks have been slow to approve short sales — those in which the lender agrees to receive less than the total outstanding mortgage amount.

Short sales are generally seen as a far better outcome than foreclosure. But figuring out ways to streamline the short-sale process, while avoiding fraudulent sales, has been difficult. For example, an Obama administration program that provides incentives for short sales has only helped about 35,000 homeowners as of February. Freddie Mac, meanwhile, says it completed nearly 46,000 short sales last year.

Those numbers, however, pale in comparison to the number of foreclosures in the U.S. In March alone, more than 55,000 homes were lost to foreclosure, according to RealtyTrac Inc.

Late Tuesday, the federal regulator for Fannie Mae and Freddie Mac announced new steps designed to ensure potential buyers get a quick response when trying to purchase a short sale.

Loan servicers that collect payments for Fannie and Freddie will be required to make a decision within 30 days of receiving an offer for a purchase of a short sale. In addition, they are required to consider a distressed homeowner’s request for a short sale within 30 days.

If more than 30 days are needed, the lender must give borrowers weekly status updates and a decision within 60 days of the initial application — an effort to aid mortgage lenders who need time to obtain an opinion on the value of the property or the approval of a mortgage insurer.

“Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating,” said Tracy Mooney, a Freddie Mac senior vice president. The new timelines “are intended to help make the decision process more transparent and timely.”

Andrew Wilson, a Fannie Mae spokesman, said that short sales “can be complex transactions that involve many parties, and making the process faster and more efficient will benefit homeowners, communities and taxpayers.”

Freddie Mac has issued formal guidelines on the new short sale timelines, and Fannie Mae is expected to do so soon.

Fannie and Freddie were also directed by their regulator to develop new strategies to encourage homeowners to avoid eviction by turning over the deed to their property, or by signing a lease for a property in exchange for the deed. Fannie Mae in late 2009 announced a “deed for lease” program, but it met with limited success.

Source:  Wall Street Journal online, article by Alan Zibel