On Short Sales, the Rubber Now Meets the Road

By Robert Freedman, Senior Editor, REALTOR® Magazine

It’ll be interesting to see what happens on Monday. That’s the day lenders who participate in the federal government’s mortgage modification program are required to participate in its standardized short-sale procedures. All of the big lenders participate in the modification program, so all of them are committed to participating in the short-sale program, too. So, the main universe of lenders will be following the new procedures.

Of course, Fannie Mae and Freddie Mac haven’t come out with their own guidelines yet, although they’ve said they will be doing so soon and that their guidelines will be based on the government’s program (hard for them not to be, since the companies are under government conservatorship now). So, once those guidelines are out, most mortgages will be eligible for processing under the federal short-sale procedures.

In reality, little will change right away. The short-sale guidelines put timelines in place (when to respond to a short-sale application, for instance), but lenders are unlikely to meet them because the deadlines aren’t realistic now. It’s more appropriate to look at the timelines as aspirational goals. So, it’s probably safe to say that although the days of six-month waits to hear back from lenders on short-sale applications are over, neither will those applications get processed in 10 days.

What you can expect, though, is better communication between you and the lenders, and certainly more of a commitment by lenders to move on these applications. According to one servicing expert, not only do lenders now have monetary incentive but lenders have made the mental shift to short sales and are genuinely taking steps to move on them with dispatch, including by handing over big batches of applications to what are known as component servicers. These are servicing specialists whose pay incentive is tied to closing short sale deals, not sending troubled mortgages to the foreclosure department. You can learn more about component servicers and other processing changes by lenders in a webinar we hosted a couple of weeks ago on the impact of distressed sales on buyers’ ability to use the tax credit before it expires.

None of these changes mean every or even most short sale applications will get to closing. It remains the case that many applications simply don’t make good short-sale candidates, and nothing in the rules will change that. The rules are only intended to clear the log jam of applications that are appropriate for short sales.

The video above provides a pretty detailed look at the new rules. It’s 14 minutes long–a major investment in time in the world of Web video. But I think it rewards careful viewing. You can also access a webinar with NAR Regulatory Affairs on the new rules which was hosted on March 19 and is now available for archived viewing. It’s an hour long, but you can skip through it as needed to get to the parts of most interest to you. Here’s a link to the webinar.

If, after Monday, short sales suddenly seem easier, by all means let us know. We certainly don’t expect that, but it’s nice to be surprised.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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  1. Hello,

    The simple solution is this:

    1. Federal emergency legislation to mandate that ALL banks and lending institutions that made loans in the last five years allow for an UNCONDITIONAL ASSUMPTION OF AN EXISTING MORTGAGE WHETHER IT BE RESIDENTIAL OR COMMERCIAL.

    2. The mortgage can be assumed by the new purchaser with a minimum cash down payment of 20% of the sales price. The sales price can not be less than the mortgage amount.

    3. 10% of the downpayment will be used to pay down the existing mortgage.

    4. The bank can not refuse the new purchaser or collect ANY fees for the transaction.

    This legislation will immedialetly free up thousands of mortgaged properties that are languishing on the market . Since banks will not lend, the values of these properties are dropping by the day since there is no liquidity in the market. This plan wil effectively provide liquidity without any new money entering the market OR having the Federal Govt provide tax breaks.

    The consmer benefits since he or she has more options and are not beholden to the Bank.

    Why will this work ???? Its too easy and it makes to much sense !!!

    Email your congressman/congresswoman to sponsor this proposed legislation !
    Your livelihood depends on it !!!

    Best Regards.

    Raymond Rapcavage
    Ray Rap Realty
    Staten Island, New York

  2. I like your ideas Ray.

    Banks need to establish a percentage or flat rate value they are willing to lose in a short sale for any property that is in distress.

    They spend up to $100k to foreclose
    They lose the monthly mortgage payment for up to a year
    They sometime invest money into the property to make is saleable
    Then they sell it for 50-70% of market value

    They would be better off letting the existing borrower off the hook on a sale well below what is owed, to expedite the sale of the home and avoid an expensive foreclosure process.

    The market may be driven down further by this action, but the market will fall anyways with more foreclosure and short sales.

    Borrowers in serious distress should qualify for short sales first, while focusing on refinancing with principal reductions for borrowers with potential for recovery with minor assistance.

    Banks just don’t want to accept their loses, so we all have to lose with them it seems

    Jonathan Usher
    Forte Auctions
    VP of Business Development

  3. Nancy Battles

    I have jumped through all the hoops (attended SFR training, watched videos, read the articles) but I don’t think the banks have a clue! And I just got through being SLIMED by a “3rd party negotiator” who is nothing more that a predatory lender in a former life now turned into a predator “negotiator” whose sole purpose is to the a buyer hooked on his loan product (Balboa Lending through Prospect Mortgage) rather than get the short sale done. How utterly unscrupulous to buyers and owners of distressed properties. And listing agents need to beware of any “negotiator” offering them a listing (and expecting a payment for doing so that they will negotiate.

    This is the first time I have blogged so I hope I am not offending anyone!

  4. Ray It wont work because the homes are not worth what people owe!
    The banks need to be forced to make every home that is on the market shortsale or reo to be hud ready so no repairs need to be negotiated and so the buyers can get the loans without lengthy escrows! I also believe that the banks should have to get an appraisal done upfront before the home is listed and the listing price should be determined by the appraisal. Then they should be able to release the appraisal to the buyers so our processing time to get these properties off the market and get it back to normal! Its so simple but no one is asking us who do all the work and get frustrated!

  5. http://cityzendc.com/2010/09/29/short-sales-explained-2/

    Dale Mattison, NAR board member and associate broker with L&F, was interviewed on Fox News yesteday about short sales and their gaining popularity.
    How familiar are you with them? What are things that you need for the short sales process? Did you know that you don’t have to necessarily be delinquent to go the short sale route?

  6. The underwritters are really being over careful to not lose there jobs even with people that have good credit and are killing deals on buyers. Then on the otherside the short sale investors and banks are being unrealistic because of inexperianced appraisals and BPOs over pricing short sales sometimes by 20% these regulations have to be losened up somewhere its clogging up the world market of money in the way our system works and driving our econmy further into the ground. Im tired of the appraisers BPOs and Underwriters killing a perfectly good deal and still going home with a pay check in there pocket while everyone else is left at the door step without the key.

  7. I don’t want to sell my new house.

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