It’s really puzzling that the powers that be make completing a short sale such a time-consuming and frustrating process. I don’t mean that I think lenders should be happy to take a loss on a mortgage, but I would think they’d act more aggressively on their fiduciary responsibility to minimize losses.
A Clayton Holdings, Inc analysis quoted by the Wall Street Journal found that a short sale typically results in a 19% loss of the loan amount. Homes that are sold after foreclosure typically result in a 40% loss. Really, I didn’t need someone’s analysis to tell me that. I think it’s pretty much common sense.
So, I’ve always been puzzled about the lack of support lenders seem to give to the short sale process. Once a lender is convinced that a mortgagee doesn’t have the ability to either continue payments or sell the property to pay off the mortgage, why wouldn’t they want to take the next best alternative?
That same WSJ article announced a couple of things Freddie and Fannie are finally starting to do to make the short sale process more reasonable. Within the next few months, Fannie Mae says it will try to streamline the short sale process by giving brokers an up front indication of the minimum offer that would be acceptable in a short sale.
Top service organizations for Freddie Mac have already been given greater latitude to accept short sales on homes where the homeowner is still able to make monthly payments. I’ll bet that policy will provide motivation for more people to find a solution to their mortgage problems – maybe rather than just abandoning the house.
Right now, if an owner wants to do a short sale to save their credit history, it seems counterproductive for the lender to force them to stop paying their mortgage to illustrate their financial troubles. I think that’s what calculators and net worth statements are for.
We can’t make the sub-prime mess go away, but it’s heartening to see lenders supporting the more reasonable ways to handle the situation.
5 Comments
May 22nd, 2008 at 8:21 pm
Great summary of the frustrating short sale process. It’s not the number of short sales that are hurting the process the most it is the number of people the banks are using to streamline the process. I bought my house on a short sale 4 years ago and got an answer within 2-3 weeks. Part of the success was that the file went directly to a lost mitigation department. Now offers go from a general fax (2-4 days) into a short sale processors desk (1-2 weeks), to a negotiator (2-4 weeks), a bpo takes 1-2 weeks to process for these companies and then Freddie Mac and Fannie Mae have to weigh in (3-6 weeks). I have 26 short sales in process in Jacksonville, Fl. and have never spent so many frustrating hours with non-concerned “bank representatives” in my life! It makes REO look like hog heaven!
May 22nd, 2008 at 10:12 pm
Ah, yes, the pain of it all. I guess that’s what happens when everyone is handling more short sales than they ever dreamed possible!
Hopefully the powers that be will figure out ways to streamline the process. But, even though it would be in their best interest, too, I doubt that will happen.
Hang in there and best of luck!
June 13th, 2008 at 3:11 pm
wouldnt it be smart if the powers that be maybe bailed out the people who bought these homes instead of just the creditors. if the people who are in trouble received the ability to pay off these massive debts then the creditors would be happy, there would be more money that could be then re-invested into the economy and things would essentially stabilize.
June 13th, 2008 at 3:23 pm
It is a frustrating thing. I also read another opinion that if all agents stopped doing short sales, that would force the power brokers to find another way to handle foreclosures. I think we’re all in agreement that something needs to change!
November 18th, 2008 at 10:16 pm
I used to be pretty excited about short sales, but my attitude is changing rapidly…The way in which short sales are being handled these days clearly reflect the instability of the market.