I'm republishing this article just posted by our Broker Brenda Prowse on the Active Rain website.

http://activerain.com/blogsview/1252490/waiting-for-short-sale-approval

I'm writing this as much to get other opinions as to express my own. My Team and I have been pondering why in all our training and experience, the watch word for closing a successful short sale seems to be to planning for a very long waiting period for bank response - 30 to 60 days is pretty typical. We have a current offer that was first submitted in March with still no bank response. I thank the Distressed Property Institute for instilling in us the right expectations about how long it may take the bank to respond to offers and how to best ensure our success. This article is to raise the question, why are the loan servicers taking so long and what can we do about it?

In cases where the bank is local we can communicate more easily to obtain a timely response. However, servicers for larger banks are taking much longer to respond to short sale offers, and even with our training to manage the buyer's and seller's expectations, this long servicer's response time is beyond the reasonable planning and expectations of most buyers in a real estate transaction, and thus reduces many seller's chances of completing a short sale in the window available prior to foreclosure.

The loan servicers are no longer receiving payments for the loans and apparently have few resources and little incentive to hire staff and improve processing turnaround. A typical negotiator may have hundreds of files to manage, and the process appears very inefficient. They constitute an economic externality that no other party to the transaction is empowered to improve or cure. While a recent press release at financialstability.gov implies that the government has completed steps to reduce unnecessary foreclosures and is moving on to address regulatory issues, both our local Kitsap Real Estate market and the national market have a large shadow inventory of homes. Now there are reports that this shadow inventory may return to the market as properties in foreclosure following unsuccessful loan modifications. The time is ripe for the Government to reduce other incentives and to provide incentives to loan servicers to process short sales when completing such would be beneficial to all parties. In a sense, this would be a bailout for homeowners credit instead of subjecting them to unnecessary consequences for the hardships imposed by a failing economy and real estate market. The Government has certainly given this same benefit of the doubt to the large banks.

In May there were news articles announcing that some incentives for short sales were to be added to the "Making Home Affordable" portion of the Financial Stability Plan. The makinghomeaffordable.gov website does not include any obvious reference to these changes or provide discussion of a short sale in the frequently asked questions. We know too that FHA/HUD have clear guidelines for processing preforeclosure sales.

Approving short sales where the seller can demonstrate valid hardship and has no more liquid assets to contribute benefits not only the seller, but also the bank, the neighborhood, and the buyer. With a reasonable turnaround for bank approval, millions more short sales could be completed without the need for foreclosure and its attendant consequences.

I think this issue is very important to the restoration of our banking system, lending, employment, and economic recovery in our country.

Brenda Prowse
Broker/Owner - Prowse and Company

At the end of the 2nd quarter 2009, the percentage of mortgages in foreclosure or delinquent (having missed one or more payments) was about 13%, or about $5.9 million nationally. Even though percentages of subprime mortgages that are delinquent are far higher than percentages of prime mortgages, rising unemployement has resulted in far higher numbers of prime borrowers becoming distressed home owners. Prime borrowers are by far the largest group of distressed property owners.

Here is more detail on the Mortgage Banker's association numbers from Q2 2009.

Calculated Risk recently published data released at the end of the second quarter, 2009, by the Mortgage Bankers Association showing bankruptcies and loan delinquencies by state. Washington had a bankruptcy rate of 1.22 per thousand and 8.3% of loans delinquent or in foreclosure. We can use these numbers to estimate the number of bankruptcies and delinquent loans in Kitsap County.

If we use the Kitsap County population of 239,769 from July 2008, that would imply about 300 bankruptcies. There are about 44 million mortgages in the US, which would imply based on the ratio of population that there are about 35,000 mortgages in Kitsap County, so about 3000 loans may be delinquent or in foreclosure, about 1.7 times the current inventory of homes on the market in Kitsap.