Short Sales to Reach Record Numbers This Year?

Short sales are surging this year, and if the trend continues, they could reach record levels in 2012, RealtyTrac reports.

Short-sale transactions are starting to outpace foreclosure sales, as more banks see it as a better option to curb high losses from foreclosures. More mortgage servicers are also trying to increase the pace of approving short sales, a process that is generally viewed as drawn-out and lengthy.

Short sales increased 33 percent in the last year, according to January data released this week by RealtyTrac. Thirty-two states saw year-over-year increases in short sales. Lender Processing Services Inc., which also recently released its January housing data, showed that short sales accounted for 23.9 percent of home purchases in January while foreclosures made up 19.7 percent of sales — the first time that short sales have outnumbered foreclosures.

“[We] believe 2012 could be a record year for short sales,” says Daren Blomquist, vice president at RealtyTrac.

This week, the Federal Housing Finance Agency, the regulator to mortgage giants Fannie Mae and Freddie Mac, issued new rules to speed up the pace of short sales. Mortgage servicers will be required to respond to a short-sale request within 30 days and make a decision about short-sale offers within 60 days. The new rules go into effect June 1.

Source: “Short Sales Expected to Surge This Year,” CNNMoney (April 19, 2012) and “Short Sales Start to Outpace Foreclosures,” REALTOR® Magazine Daily News (April 19, 2012)

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Speed Up Short Sales, FHFA Directs Servicers

The Federal Housing Finance Agency announced a new policy to speed up the process that mortgage servicers use to handle short sales, deeds-in-lieu, and deeds-for-lease for mortgages that are backed by Fannie Mae and Freddie Mac.

The FHFA, the regulator of Fannie and Freddie, says the new policy includes a revised timeline that will require mortgage servicers to respond to a request for a short sale offer within 30 days. Servicers also will be required to make a final decision on the short sale offer within 60 days.

For any short sale offer still under review after 30 days, banks will be required to provide weekly status updates to borrowers regarding the pending short sale offer.

The new policy, which will roll out in stages starting in June, aims to “prevent foreclosures, keep homes occupied, and help maintain stable communities,” says Edward DeMarco, the FHFA’s acting director. “These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

The FHFA also says that by the end of the year there will be additional announcements from Fannie and Freddie that are aimed at addressing borrower eligibility and evaluation, simplifying documents, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance.

Source: Federal Housing Finance Agency

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Banks Offer More Cash Incentives for Short Sales

More banks are offering home owners incentives to sell their houses in a short sale to prevent a costly foreclosure to the bank. In fact, some banks are offering struggling home owners as much as $35,000 to do a short sale, according to an article at CNNMoney.

Many home owners have been surprised at banks’ recent willingness to approve short sales.

“Initially, the home owners are skeptical,” says Elizabeth Weintraub, a real estate professional in Sacramento, Calif. “The bank may have already turned down their request for a modification. Then, one day, they call and say, ‘Let us give you some cash.'”

For banks, the incentives have proven to be a smarter move than letting a property fall into foreclosure.

“The first choice is a modification, but if that’s impossible then a short sale is a faster, more efficient solution,” Tom Kelly, a spokesman for Chase Mortgage, said.

With a foreclosure, home owners stop making their mortgage payments and usually property taxes as well. They also often put off maintenance issues, which can cause the home to lose value even more. Foreclosed homes sold, on average, for 22 percent less than homes not in foreclosure in December, according to National Association of REALTORS®’ data. For comparison, discounts for short sales were about 14 percent.

“I’ve seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again,” says John Hayton, a short sale specialist in Orlando, Fla.

Source: “Banks Pay Delinquent Borrowers $35,000 to Sell Their Homes,” CNNMoney (Feb. 10, 2012)

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NAR: Increased Lending, Short Sales Will Reduce REOs

Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of REALTORS®.

In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies’ recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.

In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.

“As the leading advocate for housing issues, REALTORS®know that foreclosures affect families, communities, the housing market and our nation’s economy,” said NAR President Ron Phipps. “We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery.”

Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.

To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.

“Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values,” Phipps said. “Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities.”

NAR’s letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.

He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies’ assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the Realtors Property Resource™, an NAR subsidiary.

NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that’s a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program.  He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.

“REALTORS® welcome the agencies’ desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues,” said Phipps.

Source: NAR

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Which Banks Are Pursuing the Most Short Sales?

JPMorgan Chase and Wells Fargo accounted for 60 percent of the some 17,781 short sale and deed-in-lieu agreements loan servicers completed through May under the Home Affordable Foreclosure Alternatives program, reports Inman News in its analysis of the latest figures provided by the Treasury Department.

The two banks emerged as the front-runners in completing short sales and deed-in-lieu of foreclosure agreements when compared up against other loan servicers, all participating in the HAFA program.

On the other hand, Bank of America entered into less than half as many HAFA short sales or deed-in-lieu of foreclosure agreements than either JPMorgan Chase or Wells Fargo.

The government’s HAFA program provides incentives for completing short sales. For example, home owners participating in a HAFA short sale receive $3,000 in relocation assistance.

Source: “Chase, Wells Fargo Lead in HAFA Short Sales,” Inman News (July 5, 2011)

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BofA’s Short Sales Outnumber Its Foreclosures

Bank of America seems to be favoring short sales over foreclosures, at least according to new housing data released this week. The banking giant completed more short sale transactions than foreclosure sales every month for the last year and a half, HousingWire reports. Bank of America completed more than 95,000 short sales in 2010–more than double compared to the year prior.

BofA as well as other banks say the Home Affordable Foreclosure Alternatives program, introduced in April 2010, has helped make it easier to collect documents and reduce the time it takes to close on a short sale transaction. For example, Citigroup says it has dropped its average closing time from 120 days (from when the property was listed to when it closes) to 83 day currently.

“It’s a lot easier to qualify now for HAFA than it was in 2010. All I need is a hardship affidavit and one water bill. We’re trying to make it as easy as possible,” David Sunlin, Bank of America’s real estate management executive, told HousingWire.

Source: “BofA Completes More Short Sales Than REO for Last 18 Months,” HousingWire (June 14, 2011)

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Midwest MLS Offers Service to Speed Up Short Sales

Midwest Real Estate Data LLC has partnered with Fannie Mae to provide its 40,000 brokers and real estate professionals a new service that aims to shorten the time they have to wait for approval from Fannie Mae on short sale transactions.

The Fannie Mae Short Sale Assistance Desk will help real estate professionals handle post-contract issues, such as the responsiveness from loan servicers, second lien issues, or any issues involving mortgage insurance, according to MRED.

Getting an approval on a short sale transaction often can take months. By submitting the information via the streamlined service through MRED, Fannie Mae will be able to make faster decisions on short sale requests, according to MRED. Agents will receive an initial response within one week that their case is being reviewed.

MRED, which covers northern Illinois, southern Wisconsin, and northwest Indiana, is a real estate aggregator and distributor that provides multiple listing service to more than 40,000.

“Long approval delays increase the risk that a buyer will walk away,” says Dean Rouso, president of MRED. “Long approval times on short sales overall have led many potential buyers to avoid short sale listings altogether. By providing the Assistance Desk, MRED is helping to support the recovery of distressed communities.”

Source: “Midwest Real Estate Data LLC (MRED) Offers Service to Speed Up Short Sales,” Midwest Real Estate Data (March 15, 2011)

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Calif. Survey Cites Flaws in Short Sales

Fewer than three in five attempted short sales succeed due to a difficult-to-navigate process, according to the California Association of REALTORS®’ recent member survey.

The problems center around lack of response from lenders on a short sale offer, which often takes 60 days and sometimes up to six months, the survey showed. The prolonged process causes many buyers and sellers to ultimately give up.

The survey found that 94 percent of CAR real estate pros had participated in a short sale transaction last year. The most common problems they faced included unresponsiveness of lenders, onerous procedures, and long processing delays.

CAR is trying to get the public to join in its fight to change the process. It’s running a letter in several large California newspapers about the flawed short sale process. CAR argues that uniformity among lenders about what they require to approve a short sale is badly needed, particularly in situations where more than one lender holds a mortgage on the same home.

“It is never going to be a painless transaction,” says Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “It is far more complex than a typical purchase because you have so many factors at play. You are asking the lender and investor to take a loss, which is not something that is easily decided.”

Source: “‘Short Sale’ Process Under Fire,” The Press-Enterprise (March 9, 2011)

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HAFA Posts New Rules for Short Sales

Loan servicers will have 30 days to send a borrower a short-sale agreement that includes the list price or acceptable sales proceeds under recent changes made to the Home Affordable Foreclosure Alternatives Program, aimed at distressed borrowers who don’t qualify for other government loan modification programs.

Once a sales contract has been initiated, loan servicers then have 30 days to approve or reject the transaction.

The stricter timelines are believed to help speed up the short sale process, which has faced numerous complaints for how long it takes lenders to review and approve short sales often causing buyers to walk away.

The stricter timelines were apart of several revisions the Treasury Department recently announced to its HAFA program — the second major revision to the program since its launch in 2009.

Another big change: Loan servicers will no longer be restricted on paying second-lien holders, allowing them more freedom particularly when dealing with second-lien holders when borrowers owe less than $100,000. Loan servicers used to be restricted to paying second-lien holders no more than 6 percent of outstanding loan balance (with an overall limit of $6,000) in exchange for releasing subordinate liens. Second-lien holders have been another big obstacle to completing short sale transactions.

HAFA’s new directives also now forbid loan servicers from deducting vendor expenses from commissions paid to real estate brokers.

The rules are effective Feb. 1. It does not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by a federal agency such as the Federal Housing Administration (FHA).

Source: “Short-Sale Incentives Revamped Again,” Inman News (Jan. 10, 2011)

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Second Liens Roadblock for Short Sales

Second mortgages have become one of the biggest roadblocks to closing short sales.

There are about 450,000 properties in some stage of the foreclosure process with at least one junior lien, according to real estate research firm CoreLogic. These second liens are a primary challenge for Freddie Mac, said Mark Johnson, who oversees short sales for Freddie.

Holders of second liens have little left to lose so some of them are willing to get in the way of a deal in hopes of being thrown a bone, said Jon Goodman, a real-estate lawyer and investor in Boulder, Colo.

Source: The Wall Street Journal, Nick Timiraos (11/27/2010)

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