An agreement built in to the $25
billion settlement made with 5 of the nation’s largest mortgage
servicers as a result of their fraudulent foreclosure practices may increase the speed and handling of short sale offers submitted by underwater homeowners. There is a credit that will be applied to the fine they must pay for each Short Sale approved. Industry experts are expecting to see an
increase in short sale approvals because lenders and loan servicers are able to get this credit and reduce the amount of the fine they are being forced to pay.
All totalled, the settlement
requires the mortgage servicers to pay $5 billion in fines and commit to a
minimum of $17 billion in homeowner relief, including principal reductions.
Another $3 billion is earmarked for helping underwater borrowers refinance.
In an effort to push the loan
servicers to work hard and fast at approving a short sale, the thought was adding this incentive to the settlement agreement might give the Banks a good reason to approve these types of sales at a faster pace. This could lessen the number of foreclosures that hit the market and help improve the stability of our real estate market. Banks are also required to
forgive a portion of the homeowners debt which helps relieve an additional burden of the person who is losing their home.
Unfortunately, this is
only expected to help a small number of homeowners who owe more their
properties are worth – somewhere around 1 in 20, but there is some hope that this
will help bring certainty back to housing markets across the U.S. by removing one of the obstacles that have kept
homes stuck in the foreclosure pipeline for years in some cases.
According to the Wall
Street Journal, allowing debt forgiveness on approved short sales to count
against the required $17 billion in principal reductions helped secure a
settlement that will reach more borrowers.
The settlement is also
expected to increase foreclosure activity, because the servicers and lenders now
know what they can and can’t do. Part of that increase will also be among loans that
don't meet the criteria of the agreement and don't allow for a credit to the mortgage servicer.
Short Sales in the Tampa
Bay real estate market represent almost a third of the homes available for
purchase, and 61% of all properties under contract.
Eliminating that inventory
would go a long way towards a full market recovery in our area and start
driving prices in a positive direction in all neighborhoods.