There is a lot going on in the short sale and foreclosure arenas, and much of it may effect buyers, sellers and underwater borrowers. Here is the latest news:
Short Sales: Will They Soon be Shorter? There has been talk about making short sales shorter – not a new topic of course but this time the talk comes down from the Feds. The latest is that they want to make short sales more reliable as far as timing. The guidelines will only apply to Fannie Mae and Freddie Mac loans, and the full plan will be announced September 30.
Here are some of the highlights, according to the California Association of Realtors (CAR):
â€¢ Second liens: The plan entails better standardized rules between Fannie and Freddie regarding second liens and how they are to be dealt with (of course, there is no elaboration here). There is also a plan to set fixed amounts so that banks will know in advance how much they can expect to collect in a short sale. If there is no guessing and haggling with the first lender and/or the buyers and sellers to come up with an agreeable number, the second lender will be more likely to acquiesce to the short sale.
â€¢ Mortgage Insurers: The idea here is to prevent mortgage insurers from dragging out short sales. Rules will be introduced that prevent their ability to do so (via timelines), which is one of the causes of breakdowns in short sale negotiations.
â€¢ Mandatory Timelines: While there has been no information on what these might be or how they will be enforced, this is the crux of the short sale approval problem – if we can establish timelines in which a lender must respond, short sales definitely will become shorter.
â€¢ Valuation Problems: Another big problem in getting short sales accepted is valuation – there is a push to get lenders to take steps to get better property valuations, and to disclose the lowest price they will accept on a short sale property. I for one feel that lenders should eliminate agent BPOs and rely on local appraisers to come up with these numbers – I have had bad BPOs and bad appraisals almost ruin transactions.
Changes in Settlement Structure for First and Secondary Lien Holders: Second lien holders tend to get the short end of the stick when negotiating short sales, and usually walk away with very little money toward the debt that was owed. First lien holders, on the other hand, have more power in negotiations with the seller and tend to far far better, thus creating problems where subsequent lien holders refuse to settle, which of course can cause short sale approval to take a very long time or not happen at all. A new plan proposes the first and second lien holders share equally in the losses through the short sale settlement.
Banks are Overvaluing Homes, Making Foreclosures Worse: A recent article in the Huffington Post last week stated that banks are not making proper valuations on distressed properties, which in turn makes it less likely homeowners can get loan modifications, sending more properties to foreclosure. Using proper valuation methods to come up with correct numbers could prevent more foreclosures, allow more short sales and auction sales to third parties, and also allow for the possibility of more loan modifications.
Foreclosures are Down from a Year Ago, but on the Rise: Foreclosures are down from the same time last year, but are up from the previous month. Typically foreclosures slow down during the holiday season, and combined with the robo-signing settlement this could be why their numbers went down at the end of the year and into 2012. However, some say the declining numbers show progress in the mortgage industry…hmmm, what do you think? For statistics on specific states and more information on foreclosure numbers you can read this article from DSNews.