Short Sales Made Easier By New FHFA Rule Going Into Effect November 1

Wednesday, August 22, 2012 07:24
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Short Sales Made Easier By New FHFA Rule Going Into Effect November 1

Tags: Economic Outlook | economy | mortgage debt

The Federal Housing Finance Agency (FHFA) announced August 21 that it will make short selling of homes easier, aiding those who are having financial difficulties but who are not behind on their payments.

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In a short sale, holders of both first and second mortgages must agree to a lower payback amount. A short sale helps homeowners avoid foreclosure and is thought to be in the broad interests of the housing market and the overall economy.
 
Short sales typically sell for 10% less than regular sales. In a foreclosure, the discount can be as much as 30%. Another part of the FHFA plan is that second mortgage holders paybacks will be capped at $6000.
 
Since second mortgage holders do not have the power to foreclose, this may not be a good enough incentive for second mortgage holders to agree since they frequently hold off on approval of short sales in hopes of getting their money back.
 
Increased short sales also could force banks to write down more losses on their home-equity debt. The new FHFA rules go into effect November 1, giving those who are running behind increased chance of approval since the process will be more streamlined.
 
But those who are experiencing financial hardship like job loss, divorce, or death of a family member are more likely to be approved. Short sales as a percentage of homes sold have been increasing.

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