Short sale faces a number of barriers in the current markets. But these barriers have slowly been lifted.
A short sale requires a willing buyer, a price that is acceptable to all parties, and a time-frame that allows the transaction to close before foreclosure.
According to the Federal Reserve in its white paper called “The U.S. Housing Market: Current Conditions and Policy Considerations,” one of the barriers to short sale activity is the prevailing lack of knowledge of borrowers about the short sale process.
“For their part, borrowers may not know about … short sales as an alternative to foreclosure and, in some cases, may see little reason to engage in a short sale … rather than stay in their homes throughout the often drawn-out foreclosure process,” the Federal Reserve white paper says.
Another barrier faced by short sale is the delay in the approval process, this according to the National Association of Realtors (NAR).
Both the Federal Reserve and NAR have called on policy streamlining that would surmount these short sale barriers.
The Federal Housing Finance Agency (FHFA), as an organization that regulates these two mortgage lenders: Fannie Mae and Freddie Mac, listened to these short sale streamlining calls.
Last April 17, FHFA directed Fannie Mae and Freddie Mac to streamline their short sale process. FHFA directed that starting June 16 this year, short sale process in these two mortgage servicers will follow the following process:
• Review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package;
• Provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days;
• Make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.
Sens. Lisa Murkowski (R-Alaska), Scott Brown (R-Mass.) and Sherrod Brown (D-Ohio) and Reps. Tom Rooney (R-Fla.) and Rob Andrews (D-N.J.) have proposed for a legislation that would reduce delays in approving short sale transactions.
Real estate experts have also projected that the recent court approval of the $26 billion foreclosure settlement executed between the nation’s five biggest mortgage lenders and 49 state general attorneys over the issue of foreclosure processing abuses would pave the way for more short sale activities.
Brandon Moore, chief executive officer of RealtyTrac, in a statement said, “The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity.”