New Guidelines Meant to Make Short Sales a More Usable Tool
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By Paul Owers Print Article
RISMEDIA, January 15, 2010—(MCT)—Financially-stressed homeowners left hanging while their banks consider whether to approve the short sales of their properties may benefit from new federal guidelines that give lenders a 10-day limit in which to respond to purchase offers.
The rules from the U.S. Treasury, which also allow financial incentives for both sellers and lenders, could figure prominently in Florida’s housing market, where about one in every five existing-home purchases involves a short sale.
Expect at least a 60-day wait when they try to buy or sell a home via a short sale. And as Treasury’s expedited short sale process emerges between now and April “It’s a very tough process to get some degree of standards,” Balanoff said of short sales. “I think this will help—it will put more pressure to comply and get quicker results. Three or four months of waiting for an answer is not doing anyone any good—even lenders.”
The effect of the new rules will likely be somewhat limited because only banks that owe the federal government TARP bailout funds must comply. And according to Balanoff, even when certain banks do push for faster short sales, there is so little consistency among mortgage negotiators that he doesn’t expect the new deadline measures to be applied or enforced evenly.
In a short sale, the homeowner sells the property for less than what is owed on the mortgage, and the lender forgives the difference.
The Treasury rules, in addition to imposing a 10-day deadline for bank decisions, call for sellers to receive $1,500 moving allowances—and for the sellers to not have to repay any of the debt. Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing as much as $3,000 of a short sale’s proceeds to be distributed to less senior lenders.
The 83 loan servicers participating in the Obama administration’s Making Home Affordable loan modification program are required to follow the guidelines for all borrowers who have requested short sales or who did not complete loan modifications. The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which constitute about half of all U.S. mortgage debt. The two government-run mortgage companies are working on their own guidelines.
The Treasury plan, which must be implemented by lenders no later than April 2010, is meant to help sellers like Dawn Sclafani, who has been waiting since October for her lender to approve a short sale offer on her South Florida home. A buyer has offered $155,000, and she owes $233,000. Sclafani, a psychologist who lives in Margate, Fla., said she is eager for her bank to approve the deal so she can put the experience behind her. “I want to move on, but I can’t until somebody gives me permission to,” she said. “I’ve heard that this is a horrendous process. The banks are just not very cooperative. I do believe these new rules will help.”
The guidelines are meant to make short sales “a more usable tool.” The rules provide standardized paperwork for all short sales, and give buyers and sellers a more reasonable time frame for finding out whether or not the sales will happen. Others say the government may have to increase the financial incentives. The $3,000 cap on short-sale proceeds to less-senior lenders is not sitting well with second-lien holders, who have been demanding more money from sellers, the first lenders and real estate agents in exchange for releasing their claims and allowing the short sales to proceed. Many short sale properties have two liens.
A spokeswoman for the Treasury says it will hand down “substantial” penalties to lenders that don’t comply. The agency said it can fine lenders, withhold or reduce incentive payments, or require improperly rejected loans to be modified. Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don’t submit proper paperwork in a timely manner.
Because short sales involve so many moving parts, lenders will be hard-pressed to meet the 10-day deadline, said Anthony DiMarco, executive vice president of government affairs for the Florida Bankers Association. “That will be a challenge,” he said.
In many cases, the banks are not to blame for the delays, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. But he thinks the guidelines are necessary to help clear the market of so many distressed properties. “I think the pressure on the banks is a good thing,” Kellogg said.
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