With short sales expected to outpace foreclosures in the coming year, the short sale process itself will be streamlined under new guidelines adopted by Fannie Mae and Freddie Mac. The guidelines, which take effect on June 15, 2012, require mortgage servicers to respond to buyers’ offers for a short sale expediently to avoid the lengthy delays that often lead to the loss of a sale.
Lenders are notoriously slow to respond to short sale requests, and the short sale process often can drag on for months. Under the new guidelines, which are required by the Federal Housing Finance Agency, financial institutions that service mortgages backed by Fannie Mae and Freddie Mac must review and respond to a short sale request within 30 calendar days of receiving the buyer’s offer.
Short sales have become more common in recent years due to the steep decline in housing prices, which left many homeowners “underwater,” owing more on their mortgage than the current value of their home. Homeowners who no longer could afford their loan payments often were forced from their homes as a result of foreclosure, unaware that other options, such as a short sale, were available.
In a short sale, the lender agrees to take a loss on the mortgage if the seller is able to find a buyer to pay at or near the market value for the home. The seller does not make any money on the sale of the house and is able to get out from under the mortgage note without incurring the emotional and financial toll of a foreclosure.
Currently, the average time to complete a short sale is 306 days, according to data from RealtyTrac. This is a significant jump from the 113-day average in 2006, as the housing market first began its prolonged decline. With the number of short sales continuing to increase—January saw more than 35,000 short sales nationwide—lenders are becoming more accommodating in an effort to speed the process. The new Fannie Mae/Freddie Mac guidelines should further help to shorten the time period required for a successful short sale. In addition to the mandatory 30-day review and response period, mortgage servicers will be required to inform borrowers of a decision within 60 calendar days of receiving an offer.
Both government agencies are expected to announce further enhancements to the short sale process before year-end. If you have any questions about short sales or would like to discuss the option of a short sale on your home, please call us at 972-342-0011.