Will a 'Short Sale' Stimulate Home Sales in 2010?
Will a quicker ‘short sale’ process bring about healthier home sales in 2010?
Scottsdale, Ariz. Is a housing turnaround possible in 2010? That’s what U.S. homeowners and real estate professionals are counting on when the government’s ‘short sale’ guidelines take effect in April—guidelines that are designed to “shorten” the short sale process. This is great news for the nation’s one out of every 10 homeowners currently behind on their mortgage payments.
“Short sales could be the most practical answer for homeowners looking to avoid foreclosure,” said Lisa Matykiewicz, a Gilbert, Arizona-based realtor who blogs at www.lisamatyhelps.com. “Previously, short sales have been anything but short over the past few years, with deals taking anywhere from 4-8 months to move through the process. Now, instead of facing foreclosure, homeowners could actually benefit from a tightened, expedient short sale process.”
The federal guidelines are designed to accelerate procedures and agreements between lenders, real estate agents, buyers and sellers. When they take effect, short sale offers will need to receive lender approval or denial within 10 days. If a borrower sells their home through a short sale, they could be eligible for a $1,500 moving allowance. The new program will also offer incentives for loan servicers to accept short sales when borrowers fail to qualify for the government’s Home Affordable Modification Program (HAMP).
According to a First Core American Logic study, 23 percent of all U.S. homeowners with a mortgage had negative equity in their home as of September 2009—nearly 10.7 million homeowners. An additional 2.3 million mortgages were approaching negative equity (under five percent equity). These homeowners shared similar scenarios, they: financed their properties between 2005 and 2008; purchased newly-built homes; relied on adjustable rate mortgages; and bought properties with an average sales price of $210,300.
More than 300,000 U.S. homeowners were served a foreclosure notice in November, according to the property listings site, RealtyTrac. Additionally, one in every 165 homes is in danger of becoming bank-owned. If foreclosures keep rising, real estate analysts also predict a surge of short sales—when a lender accepts a selling price less than the amount owed on a loan.
According to the National Association of Realtors (NAR), about one in 10 home sales in the U.S. was a short sale in 2009. That ratio tended to be higher, however, in California, Nevada, Florida, Arizona and Michigan, whose housing markets were hit hardest during the recent downturn.
Asking prices for homes are declining in 25 of 26 metro markets, according to the December 2009 National Real Estate Market Report. As asking prices decline, prospects for a quick ‘short sale’ increase.
“I think in 2010, you’re going to see a lot more short sales and hopefully reduced foreclosures,” said Travis Hamel Olsen, COO of Loan Resolution Corporation. “The push right now is for servicers to avoid foreclosure and the push is coming not only from the Obama Administration and the Treasury but also from the owners of the loans such as Fannie Mae and Freddie Mac. And the focus right now is on short sales.”
In recent years, real estate agents have preferred foreclosures over short sales due to the much shorter response time. Typically, lender acceptance or denial of an offer on a foreclosed property is received within two weeks, verses the 4-8 month response time for a short sale. Banks and other lenders, however, generally prefer short sales, which avoid the extra costs involved with foreclosures. This struggle has led to the all-too-familiar scenario of buyers backing out of a short sale prior to receiving the lender’s approval because the home has significantly decreased in value due to the elongated lag time.
Mr. Olsen of Loan Resolution Corporation told Realty Times that greater cooperation between banks and agents on short sales should lead to an improved selling situation. “With the short sale closed, [homeowners] can move on with their lives a lot faster. From the real estate agents’ point of view, they spend less time doing short sales and then can go about getting other listings and making more money, and from the banks’ point of view, they’re happy because the volume of short sales that they have going on decreases because we’re resolving so many more, so much faster,” says Olsen.
Next April, residential homeowners will have to prove the following requirements for a short sale: the property must be the homeowner's principal residence; the homeowner is either late on the mortgage or nearing default; the mortgage is less than $730,000 and was taken out before Jan. 1, 2009; and the borrowers' total monthly mortgage payment exceeds 31 percent of their before-tax income.
Ms. Matykiewicz, who is a Certified Distressed Property Expert (CDPE) with a specific understanding of real estate issues and foreclosure avoidance options (specifically short sales), says she is encouraged with the recent moves by lenders like Bank of America and Wachovia Golden West & World Savings. They are piloting new short sale programs and training their staff to expedite the process within their own system. “When all the moving parts in a system start to work well together,” she said, “then short sales can be facilitated faster, with a better win-win ratio for both sellers and buyers.”
Source: Niche Focus Group
