Recent announcement by U.S. Treasury to increase incentives to approve short sales

There was a recent press release from the U.S. Treasury that stated that the Treasury Department would soon finalize plans to increase incentives for "banks" to approve short sales.

The "banks" here includes both the servicing lenders and the secondary market investors, and it is usually (but not always) the secondary market investors who approve the short sales.

The problem first came about when the mortgage crisis hit and people began losing their homes en masse.  The Treasury Department did little at that time.  This crisis also increased almost exponentially the numbers of short sales being processed by the servicing lenders and reviewed by the secondary market investors.

The servicing lenders were also in a severe financial crisis and many failed.  So add a financial crisis to suddenly needing many more processors to handle foreclosures and short sales, and this spelled trouble...in the form of extremely long short sale processing time. 

Then came bailouts and servicing lenders now had incentives to foreclose.  Short sale buyers would not hang around for so many months, and many short sale packages were tanked by servicing lender processors.

In the last few months, Treasury has conducted a number of experimental programs with Fannie, Freddie, and a number of servicing lenders to find ways to efficiently process short sale proposals.

However, the biggest emphasis has been on getting servicing lenders to approve loan modifications.  With the law change in May requiring them to process workouts, loan modification approvals increased from about a reported 15% rate to a reported rate of approval of about 35%.

Now Treasury is trying to offset the previous disincentives to process short sales by approving more money to the lenders.  This is like what happened to bread in the 60's.  Do you remember?   Bread bakeries took much of the nutrition to make white bread and added a little back.  They then proclaimed how great they were for adding nutrition. 

Short sales are improving, however.  Our firm has seen a great reduction in the length of time it takes for servicing lenders to process our short sale proposals and forward them to the secondary market investor, and for these investors to approve them.  Many MI carriers, however, are still slow in processing and approving, but some are also improving.

Let's hope that we see more improvement very, very soon.

Best wishes,

Ken Lawson JD