Financially-stressed homeowners left hanging while their banks consider whether to approve the short sales of their properties may benefit from new federal guidelines that give lenders a 10-day limit in which to respond to purchase offers.
The rules from the U.S. Treasury, which also allow financial incentives for both sellers and lenders, could figure prominently in struggling housing markets all over the country. There are, however, limitations which include the stipulation that only banks that owe the federal government TARP bailout funds must comply. The Treasury rules, in addition to imposing a 10-day deadline for bank decisions, call for sellers to receive $1,500 moving allowances—and for the sellers to not have to repay any of the debt. Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing as much as $3,000 of a short sale’s proceeds to be distributed to less senior lenders.
The 83 loan servicers participating in the Obama administration’s Making Home Affordable loan modification program are required to follow the guidelines for all borrowers who have requested short sales or who did not complete loan modifications. The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which constitute about half of all U.S. mortgage debt. The two government-run mortgage companies are working on their own guidelines.
In a short sale, the homeowner sells the property for less than what is owed on the mortgage, and the lender forgives the difference. Many single-family mortgage holders in Virginia are “under water,” meaning they owe more than their homes are currently worth if they were to be listed for sale in today’s market. The Treasury’s new plan is aimed at helping homeowners like the ones we help everyday must be implemented by lenders no later than April 2010.