Imagine you’re underwater on your mortgage, but you’re trying to sell your home. Your REALTOR® has a buyer lined up. Everything looks good to go. Except there’s one small problem: Your lender isn’t responding to your repeated requests to approve the sale.
This predicament is plaguing home owners across the country who are pursuing short sales — real estate transactions that require your lender’s OK because you want to sell your home for less than what you owe on the mortgage. About 13% of residential transactions are short sales, according to the NATIONAL ASSOCIATION OF REALTORS®.
Fannie, Freddie act on short sale delays
Fannie Mae and Freddie Mac, the government-backed agencies that guarantee many mortgages, recognize the problem. They recently set new rules, which take effect June 15, requiring banks that do business with them to respond within 30 days to home owners asking permission to do a short sale. If the lender needs more than 30 days, it has to send you a weekly update. In all, it can’t take more than 60 days to respond.
Unfortunately, that rule doesn’t apply to home owners whose loans weren’t guaranteed by one of the two mortgage market giants.
Bipartisan short sale bills
But two bipartisan bills aim to bring lenders to heel on short sale delays.
Sens. Lisa Murkowski (R-Alaska), Scott Brown (R-Mass.), and Sherrod Brown (D-Ohio) introduced the Prompt Notification of Short Sale Act last month to speed up the housing recovery. The bipartisan bill would require lenders to respond one way or the other to a short sale request from a home owner within 75 days, rather than three times that long as is sometimes the case. If the lender doesn’t comply, it could face a $1,000 penalty along with legal fees.
“There are neighborhoods across the country full of empty homes and underwater owners [who] have legitimate offers, but unresponsive banks,” Murkowski said. “What we have here is a failure to communicate. Why don’t we make it easier for Americans trying to participate in the housing market, regardless of whether the answer is ‘yes,’ ‘no,’ or ‘maybe?’”
Last year, Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.) introduced the Prompt Decision for Qualification for Short Sale Act of 2011, which would require lenders to respond to short sale requests in 45 days.
Why do short sales take so long to get approved?
Short sales languish on the market or fall through altogether even when a REALTOR® has a seller and a buyer lined up, because it can take months for short sales to work through a bank’s complicated bureaucracy.
Short sales can also be held up by second mortgage lenders or mortgage-backed securities investors that refuse to accept the deal even though the bank that has the first mortgage wants to do the deal.
Currently, it can take as long as nine months to approve a short sale. That’s too long to ask home buyers to wait for a response to their offer. Can you imagine putting in an offer on a house only to be told: “We’ll get back to you in nine months?”
“The current short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a home owner from foreclosure,” said Moe Veissi, president of the NATIONAL ASSOCIATION OF REALTORS®.
Short sale benefits
Not only does a short sale help the home owner get out of an unworkable situation, it helps the neighborhood: A short sale typically forces down surrounding home values less than a foreclosure does.
And lenders benefit, too. Foreclosures cost lenders more than short sales — they have to maintain those properties. That’s why banks are willing to do short sales at all.
Seeing Republicans and Democrats come together to offer solutions to speed up the housing recovery should give home owners hope. Although most of Washington remains paralyzed to act on most issues and both these bills are stalled, the housing economy should be one issue that Democrats and Republicans can agree on.
Congress must realize that housing isn’t a Democratic or a Republican issue — it’s a national issue.
Do you think imposing a deadline on lenders will spur more short sales? Do you think a short sale bill will be passed?