A Brighter Day for Short Sales?
Comments: (0) Written by: Duane LeGate Date: April 18, 2008Ruth Simon and James R. Hagerty take a look at why lenders may be leery of short sales in today’s The Wall Street Journal. The article is definitely worth the read.
A recent study cited in the article by Clayton Holdings, Inc. (which tracks more than $500 billion in mortgage loans monthly for investors), finds short sales “typically result in losses of 19% of the loan amount, compared with an average loss of 40% for homes that are sold after foreclosure.” But, according to the National Association of Realtors, short sales are only about 18% of home sales. Why are lenders leery?
The short answer is because short sales are often difficult deals to complete. “Unlike a traditional real-estate sale, a short sale requires the approval of not only the buyer and the seller, but also the mortgage-servicing company,” point out Simon and Hagerty. “In many cases, loans have been packaged into securities—which means that the mortgage servicer must consider the interests of the investors who own the loans.”
“To make the process work,” says Beth Butler, chief operating officer of Miami-based EWM Realtors, “you have to have a buyer who just wants that property and is willing to wait three to four months.” And that buyer clearly isn’t everyone.
The good news? According to the article, the short sale process may be getting easier.
“In recent weeks, some mortgage companies have begun to approve short sales for borrowers who can show financial distress but haven’t yet stopped making monthly payments,” says Dan Elsea, president of brokerage services for Real Estate One in the Detroit area.
Fannie Mae and Freddie Mac have both are actively trying to streamline the short sale process In fact, Fannie Mae will soon introduce a policy giving real-estate brokers advance indication of the approximate minimum acceptable price of a short sale.” Likewise, according to The Wall Street Journal article, Freddie Mac has given its top servicers more flexibility to accept short sales for homes backed by loans it guarantees or owns.
A brighter day for short sales? Stay tuned…
