February 27th, 2010 4:42 PM by Richard T. Cirelli
Most of the purchase transactions we see in this market are "short sales" and it's important for our clients to understand the facts when dealing with them. Although a lot has been written on this topic, I recently came across a very concise explanation that we can pass along to our clients. Please see the points below...
· A Short Sale is when a home is sold for less than the amount that the present owner owes on their mortgage.
· The Servicer/Lender is the mortgage company that the owner makes their payments to. It may be a Bank or Non-Bank Mortgage Servicer or Lender.
· The owner/seller can no longer afford the home and has agreed to sell the home for less than what is owed. They have to provide their existing Servicer/Lender with a hardship letter, and financial information before the sale can proceed.
· The homeowner/seller can sign the offer, but their Servicer/Lender has to approve the sale.
· The time between when the offer is made and the time it is accepted can be several months. This is particularly true when that Servicer/Lender has not already approved any previous offers.
· The house can still be foreclosed on even if a buyer has made an offer on the house has been negotiating that offer.
· If the Buyer doesn't get their offer accepted as a short sale, the property should eventually come back on the market as a bank- owned property known as a foreclosure or REO (Real Estate Owned).
· The real estate agent that has the listing has no control over the Servicer/Lender. Buyers just need to make their best offer, submit it and wait.
· If the owner of the home files bankruptcy the short sale stops until the bankruptcy is resolved.
Short sales are a great way to get a house for a discount but it takes time, patience, and determination on everyone's part.
Mortgage Rate Update:
Just as quickly as mortgage rates went up last week, they came back down this week. Why? There are a number of factors. First of all, last week's surprise increase in the "Discount Rate" did not affect the Fed Funds Rate or Prime Rate. It was intended to merely make it a little more costly for banks to borrow emergency funds from the Federal Reserve. Its move was merely a technical one and didn't presage the raising of any of the other rates that more directly affect consumers or the broader economy. In the meantime, Fed Chairman Ben Bernanke said "interest rates will stay low for an "extended period of time," a key phra se he has used during the Fed's aggressive easing program. Adding to weakness in the MBS markets (Mortgage-Backed Securities) are the fact that the situation in Greece has gotten worse and today's release of last week's unemployment claims was much higher than expected.
An interesting fact is that even though the Government intends to stick to its plan to discontinue the purchase of MBS's at the end of March, mortgage rates haven't increased. It's believed that this part of the Stimulus Package has been responsible for keeping mortgage rates artificially low by about 1%. Now, some experts are backtracking saying that maybe mortgage rates won't rise so much once the stimulus ends. We'll have to see how that plays out and even though rates may not rise as much as expected, they almost certainly won't go lower. So, now is the time to buy or refinance.