Treasury to Push Short Sales to Ease the Foreclosure Crisis

The US Treasury Department on November 30th announced plans on how to streamline Short Sales. Even though the Making Home Affordable program has been a borderline failure, the administration continues to spin it as a success. Over 650,000 temporary loan modifications have been approved yet much fewer have been approved for permanent modification status, and stories abound of homeowners in the temporary modification status being foreclosed upon with no explanation.

Here is a summary recap of the changes that have been enacted:

To qualify for a short sale the following has to ocurr:

- Must be the homeowner’s principal residence
- The mortgage must be less than $729,750
- Homeowner is delinquent on the mortgage or “default looks likely”.
- Homeowners mortgage payment exceeds 31% DTI based on gross income.
- The Loan must have closed before 1/1/09.

The qualification of “default looks likely” seems to indicate that the borrower does not have to be in default in order to qualify for a short sale, just that a default “looks likely”. It will be interesting to see mortgage servicer responses, and Treasury’s enforcement, to short sale requests when a default “looks likely” but the borrower is not yet late.

The Changes Enacted:

- $1000 to paid to lender to process the short sale.
- $1500 to sellers for closing costs or moving expenses.
- Up to $3000 to junior lien holders for release of their lien.
- A minimum of 90 days and up to 1 year to market and sell the property.
- No foreclosure may commence during the marketing period allowed above.
- Servicers may not lower agent commissions after an offer is received.
- Standardized paperwork
- Servicers may not charge borrowers fees to participate.
- the Short Sale Must Fully Discharge the borrower !!!!
- A Short Sale request is to be approved or denied within 10 days.

This is very positive news for short sale Realtors and purchasers. These guidelines shift the emphasis toward short sales by allowing a defined marketing time without risk of foreclosure to the borrower. Other exciting changes is that it prevents reductions in realtor commissions, drastically shortens time frames while fully discharging the borrowers. The most profound change is that it allows for submission for short sale approval prior to being in default. That is powerful!