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Banks are often accused of dragging their feet when a homeowner wants to sell for less than the balance on the mortgage. A lot of those "short sales" might be better dubbed "really long and drawn out" sales. New federal guidelines, though, could now push lenders to approve short sales faster.
That's welcome news to Cathy Yamauchi. She has been trying to unload her house near Minneapolis, Minn., through a short sale since Thanksgiving. A divorce and a drop in income put her in a bind financially, and she says she can't afford the place anymore. She stopped paying the mortgage nine months ago.
That's left her in a state of perpetual packing. She points inside a nearly empty kitchen cupboard. "I wanted to bake something one night, and I'm like, oh, I already packed that baking dish," she says. "So yeah, my cupboards are pretty bare."
Yamauchi initially tried selling the house for the balance on her mortgage, $280,000, but she eventually dropped the price by about $50,000.
A buyer made an offer, and since then Yamauchi's Realtor has tried twice to submit a short sale request to Citigroup — the servicer that collects mortgage payments on behalf of the holder of the loan.
'Just Waiting, Waiting'
A company spokesman says Yamauchi's short sale application got routed wrong and there were "lapses in communication among the various parties involved." Citi's now considering her request. Yamauchi just hopes to get an answer soon, so she knows when she's moving.
"You're just waiting, waiting," she says. "It's a waiting game."
Starting this month, that waiting game will have some new rules — at least in the case of loans controlled by Fannie Mae and Freddie Mac, which account for about one-third of the troubled mortgages out there.
The companies that service Fannie and Freddie home loans will have to make decisions on short sales within 30 days. A one-month extension is possible, but then the servicer has to provide weekly status updates to homeowners on where the short sale stands.
Citi declined to offer an executive for an interview about the new rules.
But another major mortgage servicer, Wells Fargo, did oblige — and explained why the short sale process can be so complicated.
Dealing With Multiple Stakeholders
"Certainly in some cases there can be some challenges with all the multiple parties that are involved in a short sale and getting approval from everyone that's involved," says Bart Vincent of Wells Fargo's short sale division.
He says to push a short sale through, servicers have to wrangle consent from a lot of different stakeholders, including the lender or investor who controls the loan, the mortgage insurance company and sometimes a second or third lien-holder, any one of which can hold up the process.
But Vincent says his bank now has more experience getting those entities on the same page and is, on average, responding to short sale requests within 15 days of receiving all the necessary documents from a homeowner.
He says Wells Fargo generally favors short sales because they involve smaller losses than foreclosures, which often sell for much less than the original loan amount.
So Vincent believes his bank will have no trouble complying with the new Fannie and Freddie guidelines.
"In general, we have been a proponent of quicker decisions," he says. "We think that probably quicker decisions for all of short sales are better for everyone — the investor, the servicer and the borrower."
More Problems Feared
Real estate agent Chris Willette, who has handled a couple hundred short sales, remains skeptical. He says servicers have ways to botch the paperwork. Willette thinks that will continue, even with the new rules.
"Quite frankly they're still going to give the same excuses — that they've lost the paperwork, that the loan number wasn't on every page of the paperwork. I don't think it's going to do much," he says.
Willette also fears that servicers' "quicker decisions" on short sales could just mean more rejections.
And there's another issue. A lot of delinquent loans that could end up as short sales are not controlled by Fannie or Freddie and won't be helped by the new rules. Still, experts say Fannie and Freddie's new guidelines could nudge servicers across the board to speed up short sales.