Monday, January 19, 2009

Short Sales Are Slipping

Short sales seemed to have potential. Having a buyer before the property is abandoned or in foreclosure. Lenders lose a known, fixed and negotiated amount of money. Lenders do not have another piece of property bringing down their balance sheet. The owner does not have a huge financial blemish that foreclosure brings. The owner is not underwater or in despair or expected to bring a five or six figure check to closing.

Unfortunately and unexpectedly the short sales process seems to be losing steam. One process that may have had a huge impact on foreclosure stats was never implemented properly. But business mindset is to make money - not figure out ways to lose the least amount of money over time. When people could not pay their mortgage the long standing, tried-and-true foreclosure process would change ownership.

Now there appears to be a push to have the government require a better short sale process. Since business was not implementing the process itself, the National Realtor Association is pushing for a top-down (read government) approach to improve the short sale process. In an article from The Record titled Roadblocks hurting short sales we get a glimpse at the problems. Lets take a look -

Some lenders or mortgage service firms are now taking up to three months to respond to a buyer's offer, with either an acceptance or a rejection.

The result is that buyers lose patience, and possibly a mortgage commitment, and move on because there are plenty of homes to choose from.

In fact, so many Realtors have complained that the National Association of Realtors has sent a letter to several government agencies urging them to "establish an efficient and effective short sales process."

One reason for the delays is that short sales are a fairly new, unfamiliar process for the home mortgage industry. Together with the volume of short sales and foreclosures and the lack of experts, the industry is overwhelmed.

Lawrence Yun, chief economist with the NAR, recommends providing mortgage servicers with guidelines on approving selling prices so they wouldn't need investor approvals.

"Given that the private market is not expediting the short-sale process, maybe it requires some governmental intervention in the process," he said.

Funny how when things are going good - government is meddling in an industry, when problems arise government intervention is necessary.

Last April we recommended lenders figure out ways to streamline the short sales process. But unfortunately, the way the current system is set up it is easier for a lender to deal with a foreclosure than a short sale. As noted above, the business mindset it to make money, not figure out the best way to lose the least amount of money. Rarely (well probably never) will a bubble blogger agree with Lawrence Yun - but he is right in this case. Some government intervention to streamline the process could reduce foreclosure numbers. It will give the underwaters who can not afford their property an alternative to foreclosure.

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