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Fannie Mae Short-Sales Soon To Be On The Fast Track?
January 9th, 2009 categories: Foreclosures / Short Sales, Loans / Financing
Fannie Mae is now testing a new program in Orlando and Phoenix, where they will pre-approve short sales in an effort to help stem the tide of foreclosures, 
according to a report on Realtor Magazine On-Line earlier today, which also sourced the Wall Street Journal.
Short sales, also known as short-payoffs, occur when the lender is owed more than the property is worth and the owner petitions the lender to reduce the amount that needs to be repaid so that the home can be sold at its real market value.
The majority of the time, it will end up costing the lender far more to let the home go to foreclosure and re-sell it than to take a reduced loan payoff today and allow the home to be sold as a short sale. The difference to the lender can easily be in the tens of thousands in many cases.
The way the system is presently set up, the lender waits to make a decision on approving the short sale until well after an offer is presented. It can often take weeks or even several months before they decide whether or not to agree to the reduced payoff amount necessary for the sale to go through. And by that time, in many cases, the buyer has already moved onto another property due to the long delay.
Under Fannie’s new pilot program, however, lenders will supposedly approve a short payoff amount ahead of time, before the home goes up for sale, so that the seller can market the home knowing what sales price will fly.
In theory, this should dramatically shorten the time needed for the lender to approve the sale, which should break the big bottleneck and remove the long delays that many short sale buyers and sellers now face.
The one possible downside, though, is that in a declining market, prices could deteriorate further in the time between the short-sale pre-approval date and when an offer ultimately is presented. That would render the original approval meaningless, since the both the price and payoff amount would need to be reduced further for there to be a realistic chance of selling the home at its then-current market value.
It’ll be interesting to see how this all plays out in Orlando and Phoenix. If it bears positive results, then we could see it expanded to the rest of the U.S.
