Short Sales May Stop Some Foreclosures According to St Louis Mortgage and Lending Experts

The national real estate and housing scene has been horribly plagued with home values sharply dropping, unemployment rates skyrocketing and foreclosures being somewhat of the norm.

The harsh reality of this appalling situation is a paltry 4 percent of total homeowners receiving long-term mortgage assistance who faced foreclosure this past year.

This has created a whirlwind of lawmakers trying to explore financial alternatives within the Obama administration aimed at helping the remaining 96 percent who may still lose their homes.

Demographics are showing that approximately two million homes and other real estate elements are falling into foreclosure or are bank-owned with more losses coming.

Citigroup experts say the government’s current solutions have been ineffective at keeping people in their homes, and they anticipate lenders could foreclose on another 8 million loans as the economy worsens.

What does this have to do with short sales? Well, according to the National Association of Realtors, approximately 500,000 transactions in 2009 were short sales which represented almost 10 percent of all home sales.

Not surprising is the attitude adjustment from banks who are beginning to go along with short sales in increasing numbers, Bloomberg.com says.

Further data shows that short sales almost tripled to 40,000 in the first six months of 2009, compared to the same months in 2008 as reported by the St. Louis Refinancing Group and the local lending community.

The Office of Thrift Supervision and the Office of the Comptroller of the Currency seems to feel that in reality there were 25 foreclosures started or completed for each short sale filed and completed.

“It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. Mr. Green continues: “I think banks were in denial.”

Most homeowners don’t know this but there are a few benefits in doing a short sale. You remain in control of the sale as like any other home sale. And you can spare yourself the social stigma of having a foreclosure on your credit report.

But what if one wants to purchase another home. Would a short sale derail this future action? If payments were never 30 days late and no pay back was required by the lender, Fannie Mae guidelines may allow you to buy another home immediately or no longer than 3 years.

On the other hand, if your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.

But what if you were a victim of foreclosure? Do not despair. Even with restrictions in place, you may qualify to by another home within 5 years and if there’s no restrictions in place, within 7 years.

Finally, for those investors out there where this house is not their primary residence, your wait would be 7 years according to Fannie Mae’s guidelines.

With political pressures escalating from demanding consumers in the mortgage arena, the Obama administration has had no choice but to champion the short sale as a feasible alternative to foreclosure.

In addition, the Treasury Department has recently laid out finalized guidelines for carrying out short sales under the Making Homes Affordable program.

Participating servicers under the new Home Affordable Foreclosure Alternative (HAFA) program have been urged by the administration to adopt short sales as a real alternative to foreclosure.

This needed program has been implemented for homeowners who do not qualify for a loan modification under the Home Affordable Modification Program (HAMP).

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