Homeowners who need to sell their property but face negative equity positions got a little extra help from federal agencies this week. Local agents say this could help boost an already active short sale market higher in the coming months.
Short sales across Benton and Washington counties totaled 264 from Jan. 1 through Aug. 20 of this year. That was a 54% increase from 171 short sales in the same time frame of 2011, according to Vicki Briolat, agent with Crye-Leike Realtors in Bentonville.
Julia Valenciana, also an area agent with Crye-Leike, sees the local real estate market starting a new cycle — tighter supplies and rising home values. But she said the market improvements of the past few months haven’t been enough to help some homeowners.
“I have been focusing mainly in listing short sales. Many home owners may feel that they can no longer afford their home, even with modified payments, these homeowners still want to avoid the devastating effects of foreclosure.” Valenciana said.
The agents say a better alternative is a short sale, or a deed-in-lieu. In a short sale, the lender allows a home to be sold for less than what is owed on the mortgage and is a way to avoid foreclosure.
Since June, federal housing agencies have tweaked the rules twice, most recently on Tuesday (Aug, 21) in hopes of reducing the time frame for approval and broadening the scope for qualification.
If a homeowner qualifies under Home Affordable Foreclosure Alternatives (HAFA) after the short sale is successfully completed the homeowner is cleared of all remaining debt and obligations on their first lien mortgage to their mortgage servicer and is eligible for $3,000 for moving expenses, Valenciana said.
HAFA is available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac or serviced by over 100 participating mortgage servicers.
Fannie and Freddie, together own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans. Along with several federal agencies, they backed nearly 90% of new mortgages over the past year.
Valenciana said the short-sale process is expected to get shorter. New guidelines issued under the Federal Housing Finance Agency will require Fannie Mae and Freddie Mac to give home buyers of short sales notice of their final decision within 60 days. The new guidelines also will require the mortgage giants to respond to initial short-sale requests within 30 days of receiving an offer from a potential buyer.
WIthout the streamlined decision making, Briolat said, short sales could take months upon months in recent years, which frustrated buyers and sellers.
On Tuesday (Aug. 21) The Federal Housing Finance Agency announced added measures to make "short sales" of underwater homes easier for homeowners, including extending help to people who have financial difficulties but haven't missed mortgage payments.
The new guidelines, which go into effect Nov. 1, 2012, will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship, the release stated.
Borrower hardships include, death of a borrower or co-borrower, divorce, disability, or relocation for a job.
Briolat said in the past, lenders required a homeowner to be several months behind on their payments and facing foreclosure before a short sale would be considered. At that point, she said a homeowner’s credit had already been negatively impacted from the missed payments.
Agents said the short sale process was often held up when there were two lenders with title to a property.
“Back in the day when so many folks used 80-20 financing to avoid the mortgage insurance required with FHA loans, you would have one lender owning 80% and another owning 20% and neither could decide who would take the hit on a sale below the owed amount,” Briolat said.
There are also lots of cases where a homeowner has a second lien from a home improvement loan taken when market values were higher.
In the event of a short sale there isn’t enough money to fully repay all the lenders, Briolat said.
In the latest round of tweaking Fannie and Freddie agreed to place a $6,000 cap on the amount of money second lien holders can receive when the sale is completed. This is expected to prevent the mortgage holders from haggling over sale proceeds. This haggling has been known to last months and even years prior to this new program. There is a provision for second lien holders to object to the $6,000 cap.
“These new guidelines demonstrate FHFA’s and Fannie Mae’s and Freddie Mac’s commitment to enhancing and streamlining processes to avoid foreclosure and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job.”
Short sales have a milder impact on neighboring homes than foreclosures because short sales are typically discounted 10% to ordinary homes, compared with a 30% discount for foreclosures, according to real estate data firm CoreLogic Inc.
CoreLogic also notes that short sales represent roughly 12% of existing-home sales nationwide, according to housing data from June, the most recent month available. That compares to 10.88% a year ago.
Year-to-date short sales comprise about 7% of the total home sales reported through the local Multiple Listing Service in Benton and Washington counties, this compared to 5% in the year-ago period.
The housing regulator didn't estimate how many people would now qualify for short sales because of the expanded guidelines, but about 4.6 million borrowers with loans backed by Fannie or Freddie are underwater, with 80% of those homeowners having missed no mortgage payments, according to the Mortgage Bankers Association.
In Arkansas, an estimated 12.5% of homeowners have negative equity in their homes, according to CoreLogic.
Valenciana encourages homeowners having difficulty keeping up with their mortgage payments in a negative equity situation to put down their pride and contact their lenders without delay.
She said short sales have never been easier and there are several other options lenders have to help.