Earlier this year, FHA announced a new rule that extended their “anti-flipping” rule waiver. This waiver, which is extended throughout 2012, allows buyers to flip homes financed under an FHA-insured mortgage. The hope was that this would help to encourage buyers and investors to buy more of these foreclosed homes. This, in turn, would help to get many of the REOs off of the banks inventory lists, while helping many distressed homeowners avoid foreclosure.
Now, the Federal Housing Finance Agency, which oversees both Fannie Mar (FNMA) and Freddie Mac (FRE), are joining in to help encourage house flipping. Their new rules are directly related to short sales, and speeding up the process. The new rules, if followed and enforced, will help stop many homes from going into foreclosure.
Lenders Response Times to Short Sale Offers
Everyone has been talking about short sales over the past few years. What are short sales? What are the benefits? What are the disadvantages? Who wins? Who losses? There is so much information out in the world about short sales that it can be overwhelming to try to understand it all. So, what’s the bottom line? In the end, a short sale can be the last resort to avoid foreclosure. When you look at it from this angle, everyone involves wins.
Distressed homeowners can turn to short sales to get out of their mortgage debt. A short sale buyer can purchase the property from them quickly. This allows them to avoid having a foreclosure placed on their credit report. It also gives them relief from making payments on a mortgage they can no longer afford.
When a buyer is able to purchase a short sale, it’s almost always for less that what the owner owes on their current mortgage. This can make this a very lucrative deal for the buyer. They are also buying a property that is very close to being foreclosed on. So, the sale must take place quickly to avoid the foreclosure process from continuing, getting them into the house faster.
Mortgage Lender Benefits
In theory, lenders benefit from short sales because they can avoid the cost and time involved with foreclosing on the distressed homeowner. They also avoid having to go through the eviction process to physically remove them from the property once the foreclosure is complete. There’s also another major benefit for lenders. They don’t end up with another vacant property sitting on their REO list. These properties cost money because the lender is responsible for maintaining them, while they continue their efforts to market them and get them sold.
New Lender Requirements
In past years, mortgage lenders have been very slow to respond to short sale offers from even qualified buyers. For reasons no one can truly understand, they’ve allowed these homes to go into foreclosure, rather than approving the short sales to get the homes sold quickly. This alternative to foreclosure could have saved thousands of distressed homeowners from foreclosure had the banks moved fast enough.
Federal Housing Finance Agency’s new rules will now require that mortgage lenders must communicate with homeowners submitting short sale offers. This is in direct contrast to the old way of doing things where the lender just ignored the homeowner and continued on with the foreclosure. Now, mortgage lenders will be required to review the offer, and respond to it within 30 days of receipt. If for some reason, they are still reviewing it after 30 days, they must give the distressed homeowner a status report every week. They will also be required to make a final decision no later than 60 days after they receive the short sale offer. This new rule applies to all Fannie Mae and Freddie Mac homes. These new rules take effect June 1, 2012.