According to an article in the Wall Street Journal, Fannie Mae is conducting a pilot program in the Phoenix real estate market in which Fannie Mae would pre-approve a short sale – a sale where the seller owes the home more than the house currently is worth, with the lender swallowing the difference.
Two pilot projects, in Phoenix and Orlando, Fla., began at the end of December and will last for three months. The test run is limited to properties secured by a Fannie Mae mortgage and serviced by Countrywide Financial Corp., a subsidiary ofCorp. Only homes already listed at less than the unpaid balance on the mortgage are eligible for the pilot. So far, about 400 homes have qualified for preapproval between the two markets.
Per the article, lenders lose approximately 19% of the loan value through a short sale versus 40% of the loan value on a home that’s foreclosed and sold as a bank owned home.
On paper (or in the paper) this sounds good. One of the biggest challenges with a short sale listing is the guessing game involved. Lenders won’t give an indication of what price they might be willing to accept until they have an offer in hand.
Pre-approval would take the guesswork out of the equation, giving buyers the confidence that they’re in legitimate negotiations (rather than trying to negotiate with the shadowy banker from Deal or No Deal) and allowing sellers and agents to market the properties in a straight-forward manner.
Of course, that’s what’s happening on paper. In reality …
I’m currently five weeks deep into short-sale negotiations with Countrywide on a Fannie Mae-backed loan. The story has changed with almost every phone call. As best as I can ascertain, we’re now two weeks from having a negotiator assigned because the request for a negotiator wasn’t made until December 29. Paperwork was submitted December 4.
Why the long delay? Because someone entered the file into their system incorrectly and the succession of people in the short sale department who I talked to in the weeks that followed never caught the error. In their rush to tell me what I wanted to hear, they failed to tell me what I needed to know – or discover their own error.
News of the pilot program, as you can imagine, struck me doubly. First, is Countrywide properly equipped to handle pre-approvals and they’re having trouble handling the files they already have in front of them. And second, why would my file be delayed when it’s exactly the type of file they want for the pilot?
Bottom line is the concept behind the pilot is solid, especially if the figures regarding the bank’s possible losses are accurate. It doesn’t take an MBA to figure out that a 19% loss is better than a 40% loss.
If you were faced with that situation, wouldn’t you do everything in your power to try and lock in the additional 21%?
[tags]Phoenix real estate, short sales[/tags]