More than four years after the foreclosure crisis familiarized Americans with short sales – selling properties for less than the outstanding balances on their mortgages – the barriers to completing them are slowly coming down.
The nation’s large mortgage lending and servicing banks, unprepared and reluctant to deal with the demand for short sales at the height of the crisis, have slowly built resources and procedures for dealing with them.
Government pressure and federal spending on foreclosure prevention pushed them along, as did the losses and fallout that came with repossessing homes.
And now government-backed mortgage giants Fannie Mae and Freddie Mac, which own about half the residential mortgages in the country, are starting to get serious about short sales.
In June, the Federal Housing Financing Authority, the agency that oversees Fannie and Freddie, issued 30-day deadlines for the banks servicing their loans to respond to short-sale requests.
Then last month, the FHFA relaxed the rules for accepting short sales on Fannie-and-Freddie-owned loans, while establishing a fixed compensation rate for the holders of second-liens on mortgages going through short sale.
The new rules, which go into effect Nov. 1, “will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale,” a news release announcing the changes said.
The most significant change allows homeowners who are still current on their federally owned loans, but facing imminent financial trouble, to qualify for a short sale. Before, only those who already missed payments were eligible.
Bryant University finance professor Peter Nigro, who follows Fannie and Freddie, said the new guidelines look geared to mollify those in the government pushing the mortgage giants toward principal reduction.
“[Federal Housing Finance Agency Acting Director Edward J. DeMarco] has been vehement [against] principal reductions, and I guess this is the next best thing in dealing with their portfolio,” Nigro said. “He is a lifetime bureaucrat, and Fannie and Freddie have created a huge hole in budget,” which will grow even larger based on the new rules.