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» VISIT US ONLINE @ DSNEWS.COM COVER STORY MARKET PULSE PROFILE IN LEADERSHIP MARKET PULSE While efforts have been made to streamline and simplify the preforeclosure sales process, the rise (and fall) of short sales varies widely. POINT— COUNTERPOINT I n recent months, the number of short sales has multiplied, and experts predict Avoiding Potential Pitfalls Short sales are generally thought to be a the trend will continue. However, upon closer examination, it seems the veracity of this prediction is largely dependent on the laws and circumstances of better option than foreclosure for all parties involved, but occasionally problems arise. "A each individual market. potential complication occurs when there are Nevertheless, Freddie Mac reported that overall, short sales (as a percentage of the GSE's combined total of short sales and foreclosures) increased from 31 percent in the first half of 2012 to 42 percent in the first half of 2013. "This trend is expected to continue for several reasons," explained Brad German, spokesperson for Freddie Mac. "One of the reasons for the increase in short sales is that the process has been simplified and standardized." Last November, the Federal Housing Finance Agency (FHFA) directed Freddie Mac and Fannie Mae to adopt new, streamlined procedures for short sale transactions. The new guidelines set time limits for completing short sales and allow servicers to make most decisions regarding short sale offers without sending the file back to Freddie or Fannie for approval. Another factor influencing short sale volumes, German contends, is that home prices are beginning to rise in more markets, making properties easier to sell at attractive prices. This enables borrowers to get out from under their mortgage obligations and minimizes losses for the lender. German also notes that foreclosure procedures vary by state and can take up to several years to complete in some judicial states. "On the other hand," he said, "turnaround times on short sales can be 30 to 60 days, although that can vary depending on individual circumstances." One of the main benefits of the GSEs' streamlined short sale rules is to make servicers responsible for the timeliness of their decisions, explains Simone Beaty, director of mortgage servicing policy for Freddie Mac. "If servicers have everything they need to evaluate a transaction, they must give a decision to borrowers within 30 days. If they are still working out a negotiation, they can have an additional four weeks to complete their work," Beaty said. "Expanded delegation to servicers is a definite improvement from waiting for decisions from various entities, including mortgage insurance companies and Freddie Mac." multiple liens on the property. However, that is not an issue when selling REOs because these properties already have clean titles," according to German. With a short sale, title to the house is still in the name of the borrower, and there may be more than one lien. This can require more time spent in negotiation with several parties and sometimes results in delays closing a short sale transaction. Beaty paints a clearer picture with an example of a property on which another lender has a $30,000 secondary lien. "To avoid mortgage insurance, the borrower may have taken out a first lien at 80 percent of the property value and a second lien for 10 percent. In that case, a settlement for the second lien has to be negotiated first," before a short sale can proceed, she explained. Some of the difficulty and time involved in completing short sales lies with those subordinate lien holders and convincing them to forgive part of their liens. "We've worked 61

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