Lengthy timelines have long been the biggest complaint in the short sale sector. Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.
“This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,” writes Jaret Seiberg, analyst at Guggenheim Partners. “That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.”
On the plus side, short sales tend to sell at higher prices than foreclosures. It appear, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.
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