Feb 17 2012

Bill Would Address Needless Waiting Game for Buyers of “Short-Sale” Homes

WASHINGTON, D.C. – Senators Lisa Murkowski (R-AK), Scott Brown (R-MA) and Sherrod Brown (D-OH) today introduced legislation to improve the housing market by addressing “short sales” – real estate transactions that must be approved by the bank because the seller owes more on their mortgage than the proposed sale price. The legislation addresses the lengthy closing process that often comes with a short sale by requiring banks to respond in a timely manner when prospective buyers are attempting to purchases such homes.

“There are neighborhoods across the country full of empty homes and underwater owners that have legitimate offers, but unresponsive banks,” said Murkowski.  “What we have here is a failure to communicate. Why don’t we make it easier for Americans trying to participate in the housing market, regardless of whether the answer is ‘yes,’ ‘no’ or ‘maybe?’”

“It’s time to close the communication gap between banks and prospective homeowners who are willing and able to purchase short sale properties,” said Senator Scott Brown. “Our economy needs these home sales, and this legislation would lift the real estate market and benefit neighborhoods across the country.”

“For most buyers, short sales are anything but. The seemingly-endless waiting game associated with short sales represents a dangerous drag on our housing market,” Senator Sherrod Brown said. “If we’re going to recover from the housing crisis, we need to make it easier for qualified candidates by purchase homes. This common-sense legislation helps prospective home buyers and distressed homeowners alike, while helping to rebuild our neighborhoods and fostering long-term economic growth.”

“The current short sale process can be time consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a homeowner from foreclosure. As the leading advocate for homeownership, Realtors are supportive of any effort to improve the process for approving short sales.” – National Association of Realtors President Moe Veissi

The Prompt Notification of Short Sale Act would improve the process for buyers considering a “short-sale” home – a home where sellers are in negative equity and cannot pay off the balance.  Presently, it can take many months to get any kind of response to short sale offers. The legislation:

• Requires a written response of an acceptance, rejection, counter offer, or the need for an extension of time within 75 days of a request from a homeowner.
• Creates a $1,000 penalty for those that don’t comply, along with legal fees.

The nation is not even halfway through the foreclosure crisis. 6.4 percent of mortgages made between 2004 and 2008 have ended in foreclosure, and an additional 8.3 percent are at immediate, serious risk.

Foreclosure patterns are strongly linked with patterns of risky lending. Foreclosure rates are consistently worse for borrowers who received high-risk loan products that were aggressively marketed before the housing crash.

The majority of people affected by foreclosures have been white families. However, borrowers of color are more than twice as likely to lose their home as white households.

To read a full report go to Lost Ground 2011.

But there are two issues that we are dealing with. The first: all the “shadow” inventory has to be cleared out. Which will happen eventually in a year or two. “Unfortunately, a sustained improvement in housing will not likely get underway until the mountain of foreclosures is cleared and the price discovery process plays out.”

The second: there are a lot of underwater houses that people are making regular payments on, they are not behind on their mortgage, the owners are planning to hold on. .”What is going to happen to those? How much time will it take for those houses to get to market value and then some? This issue is not typically discussed, talking about foreclosures and bank owned properties has a more dramatic effect. But this fifth column of upside down houses with on time mortgages will require a lot of attention and soon if we want to recover in 2013.  “Advocates say it’s the only way to head off another wave of foreclosures by keeping underwater borrowers in their homes and will speed up the recovery. Seven economists said house prices would not recover without a writedown plan.

“Unless there is principal reduction, the only cure for the housing market is time — lots of it,” said Paul Dales, senior U.S. economist at Capital Economics. “It will take years of modest house price appreciation for households to climb out of negative equity. Until that happens, demand will remain weak.”

“Eighteen economists said they see prices bottoming in 2012, with 12 of those expecting it will happen in the first half of the year. Just one economist each said a bottom won’t be found until 2013 and 2014, while 7 said it has already happened” read more..

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