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Thursday, Mar 28, 2024

Short Sale Delays Are Slowing Home Market

High affordability is fueling home sales in the San Fernando Valley right now. And the federal home buyer tax credit, which was recently expanded and extended until April 2010, has created heavy demand for properties in the $450,000 and less category. But there’s a problem, according to local Realtors. Housing inventories are not meeting demand. And one thing is at least partially to blame: the long turnaround time for mortgage lenders to approve short sales. “There’s not a streamlined system to facilitate these short sales,” said Patti Petralia of RE/MAX Olson & Associates, Inc. “There are often so many levels of approval to go through that by the time you do the market changes and buyers may lose interest.” A short sale is when a mortgage lender discounts the amount of a loan payoff because the borrower is experiencing economic hardship. For homeowners who can’t afford their mortgage payments, it’s a way to avoid the embarrassment of going into foreclosure. For lenders, short sales can reduce the possibility of a home sitting empty. A high percentage of foreclosures do not look good on a bank’s balance sheet. And, the lender may minimize some of its losses. Over the past few years short sales have become increasingly common as properties values have dropped, unemployment increased, and many homeowners found themselves owing more than their homes are worth. “Right now the short pays are the products we largely have to work with, and in 2010 I think it will be more so,” said Petralia, adding she estimates about 30 percent of the homes on the market in the Valley are short sales. Others are foreclosures, and a small percent are traditional sales. If lenders streamline and speed up the approval process, many homeowners sitting on the fence will be able to get their homes to market, she said. But speeding up the approval process is not as simple as it may sound, said Gwen Oberg, vice president of loss mitigation/liquidation for Wells Fargo Home Mortgage, one of the nation’s largest mortgage lenders and servicers. “The reason they take a long time is because they are more complex than a traditional sale,” said Oberg, adding you’re dealing with the homeowner and his/her Realtor, buyer and Realtor, the servicer, investors, lien holders and private mortgage insurance companies. “They all have their own guidelines and everybody has to agree before a short sale can take place,” she said. Gaining approval for a mortgage with one lien holder is more likely to go through faster. But some mortgages have second and third liens and have been sold to multiple investors. Wells Fargo is receiving a flood of requests for short sales. And the company has hired more than 6,800 people this year alone who are focusing on home preservation and foreclosure prevention. Oberg said she can’t provide an average amount of time it takes to approve short sales, because they’re done on a case by case basis. But homeowner’s best defense is to reach out to lenders as soon as possible and work with a Realtor who knows the short sale process and the ins and outs of different lenders. “The biggest thing to understand is that things are complex and the sale of one house on the same street as another can be very different,” she said. Banks are telling the public they’re trying to speed up the process, said Steve Goddard of the California Association of Realtors. But as a residential real estate practitioner he’s not so sure if that’s the case. He has been working on one short sale that’s been in escrow for three months. The last time he called the lender he spent 48 minutes trying to get hold of the right person. Once he did, the lender requested information to be faxed over. All of the documents did not go through. So Goddard called back and got bounced around the telephone system for another 53 minutes – he timed it – before getting in touch with the right person. “It just goes on and on and on,” said Goddard, adding the process is different with every lender. He believes banks and other lenders are hiring inexperienced people to take care of what amounts to a monumental task that no one wants to do. Some short sales are taking five to seven months. “That’s holding up the whole process,” he said. However, Wachovia may be an exception, he said. The company sends out a representative to speak with the homeowner right away, and many approvals are completed in 30 days. He said about 80 percent of the Wachovia short sales are closing escrow. One bit of encouraging news is that on Nov. 30 the Treasury Department unveiled new rules that could speed up the short sale process. The Home Affordable Foreclosure Alternative Program lays out short sale timelines, a standard process and documents, and cash incentives to borrowers, servicers and investors. The downside is the directive doesn’t go into effect until April 5, 2010.

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