JUN 12, 2012

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Servicing Lens

We’ve Come a Long Way, Baby…

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The consensus is that short sales are better than foreclosures for many reasons, including short sales do not have a negative effect on property values; short sales are a win/win for the buyer, seller and investor; and an owner-occupied property is better for neighborhood stability.

However, with the average short sale taking anywhere from four to nine months to complete, all participants in the transaction grow impatient and dissatisfied with the process.

This could be the single most important reason why foreclosure sales still outpace short sales. Nonetheless, the short sale environment may be improving due to recent guideline changes and possible new legislation.

In an effort to help improve the housing market with increased short sale activity, Sens. Lisa Murkowski, R-Alaska, Scott Brown, R-Mass., and Sherrod Brown, D-Ohio, introduced a bill entitled “The Prompt Notification of Short Sale Act” in February 2012. It provided a fixed timeline for all servicers and lenders to approve, deny or counter a short sale offer.

The fixed timeline would help circumvent the agonizingly long process a buyer and seller typically experience while waiting for an answer, or even an acknowledgment, from their lender.

The bill requires the lender to respond within 75 days to a written request from a homeowner, or face a $1,000 fine plus possible legal fees.

The bill was introduced and referred to the Committee on Banking, Housing and Urban Affairs on Feb. 16 and that is where it still sits. So, it appears it’s another waiting game for a distressed borrower.

The Federal Housing Finance Agency, being impatient to wait for a vote on the Senate floor, issued new guidelines similar to the “short sale” legislation for servicers of Fannie Mae and Freddie Mac loans.

The new guidelines now require GSE mortgage servicers to acknowledge receipt of short sale purchase offers within three business days, review and respond to short sale offers within 30 days, and make a final decision within 60 days. These new guidelines go into effect on June 15, 2012.

During 2011, Fannie Mae and Freddie Mac closed approximately 80,000 and 45,500 short sales, respectively. With thousands of seriously delinquent loans on the GSEs’ books, this loss mitigation tool is one they would like to see trend upward. As a result, a short sales program is being developed and is expected to be rolled out by the third quarter of 2012.

Since the GSEs own the majority of the RMBS, the new 3/30/60 short sale guidelines can help out many borrowers seeking an alternative to foreclosure. But, many other borrowers underwater on their mortgage and in financial distress looking for a loss mitigation option are still waiting on congress to act.

Yes, we’ve come a long way, baby, but we still have a long way to go.

 

Cheryl Lang is president/CEO of Integrated Mortgage Solutions, Houston.

 

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