A short sale is sometimes a homeowner’s best way out of an underwater property.
But short sales aren’t all rainbows and sunshine. Unresponsive lenders, fluctuating market conditions and devilish details can stretch short sales past an agent’s breaking point.
Two recent short sale policy changes aim to improve the process. One new policy gives military families greater flexibility with their mortgages, and another seeks to quicken short sale response times.
Relocating military families gain better access to short sales
Lenders have historically been very selective in permitting short sales. Homeowners must produce a litany of documentation before even attempting to sell a home for less than what is owed:
- a hardship letter, explaining the owner’s current financial difficulties and why the owner needs to sell a home at a price that stings the lender
- a justification of the selling price
- documentation of previous attempts to sell the home at a higher price
Most importantly (and most cursedly), the owners usually must have missed mortgage payments and be in default.
But with the recent directive from the Federal Housing Finance Agency (FHFA), military owners with Permanent Change of Station (PCS) orders can request a short sale without being in default. This change could help thousands of relocating military families preserve credit and maintain financial integrity.
In a press release announcing the change, the Federal Reserve System noted that military homeowners have traditionally been advised to “intentionally skip mortgage payments in order to create the appearance that they are having financial difficulties.”
The policy change aims to erase that pointless step and provide a workable housing solution for military families ordered to relocate.
Fannie and Freddie implement short sale deadlines
It’s a longstanding jest in real estate: “There’s nothing short about a short sale.”
Hindered by layers of bureaucracy, detailed procedural requirements and nitpicky lenders, short sales can languish for months (or even years). In the first quarter of 2012, short sales took an average of 306 days to complete, according to RealtyTrac.
Even the quickest short-seller, PNC Financial, takes an average of 151 days to close a preforeclosure sale, says RealtyTrac.
New guidelines from Fannie Mae and Freddie Mac seek to quicken the process and speed the housing market recovery.
As of June 15, underwater homeowners must receive short sale feedback in a more timely manner:
[show_list style=”chk” item1=”• Banks must acknowledge receipt of short sale offers within three business days” item2=”• Banks must respond to the initial request for a short sale within 30 days” item3=”• Banks must make a final decision on the short sale no more than 60 days after the buyer’s request is made”]
The new rules apply to loans owned or backed by Fannie Mae or Freddie Mac, and have been received with tentative praise. Industry experts hope that the deadlines will simplify the short sale process, but fear a lack of consequences may hinder any real progress.
“How do you enforce something like this? There is no system to keep track,” quipped New Jersey real estate broker Christopher Tausch to NorthJersey.com. “How do I hold their feet to the fire?”
Fannie Mae answers that the deadlines are “mandatory,” and noncompliant lenders may be required to immediately repurchase a mortgage loan or “promptly remit a ‘make whole’ payment covering Fannie Mae’s loss.”
Industry experts will keep a careful eye on short sale statistics in the coming months. A quickening short sale timeline could be early evidence of the policy’s success.
Lagging sales, on the other hand, could prove Tausch’s point: enforcement is challenging.