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.