By Jim Buchta, Star Tribune (Minneapolis) –
MINNEAPOLIS — The short sale process could get a lot quicker starting this summer under new rules that will require lenders to respond to offers within a month.
Fannie Mae and Freddie Mac, the nation’s two largest mortgage backers, will implement the guidelines on June 15. The changes require mortgage servicers to make a decision within 30 days of receiving a short sale offer. They also must consider requests for pre-approved short sales within that same timeframe.
If the lender needs more than 30 days, it must give borrowers weekly status updates and a decision within 60 days of the initial application. This extension gives lenders more time to determine the value of the property or to get the approval of a mortgage insurer.
The moves are aimed at streamlining the short sale process, which often takes months to complete.
Such transactions can get so complicated that many prospective buyers won’t even consider making an offer on a short-sale property. And many of those who bid often walk away from the offer because lenders take so long to make a decision.
“Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating,” said Tracy Mooney, a Freddie Mac senior vice president. The new rules “are intended to help make the decision process more transparent and timely.”
Short sales involve homes that are sold at a price that’s lower than the balance owed. There are many reasons why such deals are a better alternative to foreclosure, including fewer fees and faster transfer of ownership, eliminating all the problems that arise when a house is left vacant after foreclosure.
Because the lender and investors are being asked to take a loss, the process can get lengthy. All parties with a financial interest negotiate who will take what share of the sale proceeds.
So far, efforts to make that process easier have largely been unsuccessful, but the need has never been more critical.
Chris Willette, a short-sale expert with Edina Realty in Edina, Minn., said that such rules are a critical step toward a housing recovery.
“We’re going to get rid of the inventory a lot more quickly,” he said. “And once you do that, you get your pricing back.”
But Willette remains skeptical. His primary concern is that the paperwork problems that currently plague the short sale process will only continue. He said getting all the forms together to complete such a transaction can be a major challenge.
Brad German, a Freddie Mac spokesperson in Virginia, said the organization will provide consistent reviews of lenders and will rank them monthly based on that performance. Those rankings are used to determine their compensation or penalties. Fannie and Freddie will continue to work on other avenues for enforcement.
