One of the most frustrating thing about short sales is that they can take forever. The reason for this is because the lender needs permission from the borrower to short sell the house, and this can take quite a while because of bureaucracy and the sheer volume of these requests. As of last March, more than 40% of short sales in California ended up falling through because of the long timeline for completing the sale (I can’t find similar information nationwide, but I assume these type of problems are pretty much universal).
In an effort to encourage more short sales, the Federal Housing Finance Agency, the conservator for Freddie Mac and Fannie Mae, has introduced some rule changes that will hopefully speed up the short sale process. The new rules will require lenders to respond to requests for short sales within 30 days and issue a yes or no decision within 60 days of the short sale request. If after 30 days the request is still being reviewed, the lender must provide weekly status updates.
This is a positive development. A few days ago information was released that showed that for the first time ever, short sales outpaced foreclosure sales in a month. I’ve discussed this at length in the past, but short sales are preferable to foreclosures in almost every way. Short sales are less harmful to the borrower than foreclosures, less harmful to the community than foreclosures, and ultimately cost the lender less money than foreclosures.
Whatever can be done to encourage short sales in lieu of foreclosures should be done. This is a common sense decision from the FHFA that costs nothing. Hopefully with the faster response times we will continue to see an increase in short sales.
Reprinted from Michael Kraus, Total Mortgage Services.
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