Short Sale Volume Up 33%
According to RealtyTrac, national short sale volume increased by 33% in January 2012 as compared to January 2011. Like it or not, short sales are a driving force in the real estate and housing finance industries, but the slower-than-mud time it takes for getting required approvals for closing a short sale causes buyers and sellers to walk away from homes burdened by loan amounts exceeding their value.
New Short Sale Rules for Fannie and Freddie Loans
The Federal Housing Finance Agency announced new rules for short sale transactions for Fannie Mae and Freddie Mac owned loans but more improvements are needed for streamlining and simplifying the approval process for short sales.
Under the new rules, shorts sales involving Fannie Mae and Freddie Mac loans will be required to respond to short sale requests within 30 business days and a final decision must be made within 60 business days. These requirements become effective June 2012, with regulators expected to address more issues delaying short sales including borrower (seller) eligibility, property valuation, and releasing home equity loans.
Variables in Short Sale Process Creating Delays
Home sales are won or lost on seller’s response time, and mortgage locks can expire before mortgage servicing companies, investors, and mortgage insurance companies can agree on approving a short sale.
Loan servicing companies coordinate obtaining borrower information, purchase offers, and gaining investor and mortgage insurance company approvals for short sales are experiencing enormous workloads and significant staff turnover. Although any improvement in the approval of short sales is welcome, a report in today’s Los Angeles Times highlights real estate professionals’ skepticism, and estimates that gaining approval for an “average” short sale takes approximately six months between offer and closing.
De-cluttering the short sale approval process is a win-win for financial institutions overburdened with foreclosed properties, for mortgage insurers paying claims to lenders on foreclosed properties, and for communities losing property tax revenue on foreclosed and abandoned homes. Qualifying buyers of short sale homes would benefit from improved opportunities to lock low mortgage rates.
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