Treasury Dept guidelines puts 10-day limit on short sales
Homeowners stuck while banks mull whether to approve short sales could benefit from new federal guidelines that give lenders a 10-day limit to respond to offers
The rules from the U.S. Treasury, which also allow for financial incentives to sellers and lenders, likely will figure prominently in South Florida as the housing slump meanders into a fifth year.
“The cloud could be lifted,” said Domenic Faro of Fort Lauderdale Real Estate firm. “This could bring us back to some normalcy.”
Still, questions linger. Some real estate agents doubt the guidelines will be enforced, while bankers wonder whether 10 business days is enough time to reply to offers.
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Nearly half of the roughly 838,000 single-family mortgage holders in Broward, Miami-Dade and Palm Beach counties are “under water,” according to third-quarter data from Zillow.com, a Seattle-based real estate firm.
While short sales are considered an ideal solution for banks and for “under water” homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to decide what to do.
Frustrated buyers walk away during the delays. In some cases, lenders insist that borrowers share in the financial loss, holding up the transactions even longer. As a result, homes stay on the market, prolonging the housing downturn.
Aside from imposing a 10-day deadline, the Treasury rules call for sellers to receive $1,500 moving allowances, and the sellers will not have to repay any of the debt.
Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to less senior lenders.
Affected banks
The 83 loan servicers participating in the Obama Administration’s Home Affordable Modification Program, including Bank of America and JPMorgan Chase, are required to follow these guidelines for all borrowers who request short sales or who did not complete loan modifications.
The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which represent about half of all U.S. mortgage debt. The government-run mortgage companies are working to finalize their guidelines.
The Treasury plan, which must be implemented by lenders no later than April, is meant to help sellers who have been waiting for many months for their lender to approve a short sale offer.
U.S. Rep Ron Klein, D-Boca Raton says the guidelines are meant to make short sales “a more usable tool.” Klein points out the rules provide standardized paperwork for all short sales and give buyers and sellers a more reasonable time frame for whether or not the sales will happen.
More incentives may be needed
But Klein and others say the government may have to increase the financial incentives. The $3,000 cap on short sale proceeds is not sitting well with second lien holders, who have been demanding more money from sellers, the first lenders and real estate agents in exchange for releasing their claims and allowing the short sales to proceed.
“This is a great program if all these mortgages had only one lien holder,” said Travis Hamel Olsen, chief operating officer for Loan Resolution Corp., an Arizona company that helps lenders complete short sales. “But many of these properties have two liens.”
Some South Florida real estate agents remain skeptical of the guidelines
Broward County agent Ron Rosen, who urged Klein last summer to push for new regulations, said he thinks “the banks will still play their little games with people and make life difficult for everyone.”
Edward Goldfarb of RE/MAX PowerPro Realty in Davie doubts the Treasury will enforce the new rules. “There’s no teeth to them,” he said.
A spokeswoman for the Treasury says it will hand down “substantial” penalties to lenders that don’t comply. The agency said it can fine lenders, withhold or reduce incentive payments and require improperly rejected loans to be modified.
Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don’t submit proper paperwork in a timely manner.
Because short sales involve so many moving parts, lenders will be hard-pressed to meet the 10-day deadline, said Anthony DiMarco, executive vice president of government affairs for the Florida Bankers Association.
“That will be a challenge,” he said.
In many cases, the banks are not to blame for the delays, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. But he thinks the guidelines are necessary to help clear the market of so many distressed properties.
“I think the pressure on [the banks] is a good thing,” Kellogg said.
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Source: http://www.miamiherald.com/2010/01/13/1421797/10-day-limit-on-short-sales-may.html
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