In the first few years of the housing crisis in the United States, many people found themselves in the position of owing more on their mortgage than their house was worth. The primary reason these homeowners found themselves underwater is that home values plummeted. Some of these homeowners needed to sell their homes due to some type of financial hardship, so they opted to try to do a short sale, which involves the lender agreeing to accept less than the total amount due on the mortgage as payment in full. Unfortunately, in these early months of the housing crisis, lenders often did not approve short sale transactions after the homeowner and buyers had waited for months for an approval.
Changes to the Short Sales Process Have Led to Shorter Wait Times and More Approvals
In an effort to decrease the number of foreclosures on the market, the Obama administration pushed for new guidelines and incentives for lenders in an effort to shorten the time sellers and buyer have to wait for a response and a decision about the short sale. Some of the changes that took place in 2012 include:
* On June 15, 2012, Fannie Mae and Freddie Mac started to require that lenders respond to a short sale package within 30 days and the lender must notify the buyer and seller of the decision within 60 days.
* Beginning November 2012, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has streamlined the requirements for short sale documentation. For example, Fannie Mae now requires less documentation from a seller to demonstrate financial hardship and the seller does not have to be in default on the loan. Additionally, Fannie no longer requires hardship documentation from those who have a credit score less than 620 or who are more than 90 delinquent on their mortgage payments.
* Loan servicers for Freddie Mac and Fannie Mae no longer have to wait for the GSEs to review the short sale package before granting approval.
* Fannie Mae and Freddie Mac now offer subordinate lien holders $6000 in an effort to decreases the obstacles to completing short sales.
Short Sales are On the Rise with More Approvals and Shorter Wait Times
Just with the changes that took place in June 2012, the number of short sales transactions that have successfully closed has increased. In August 2012 alone, 39,559 short sales closed in the United States and the number of short sales completed since 2009 has topped one million. According to Core Logic, distressed properties, the majority of which were short sales, accounted for 24 percent of existing home sales for the month of September. Additionally, according to a recent survey conducted by the California Association of Real Estate Agents, 11 percent more agents described short sale transactions as easy or extremely easy as compared to the previous year. The Realtors also reported they were much more satisfied with lenders.
With the recent increases in property values and the relaxation of some of the requirements for short sales transaction, the short sale process should be quicker and easier for both buyers and sellers.