North Carolina Short Sales
Information regarding Short Sales in North Carolina
North Carolina Short sales, an alternative to foreclosure that poses relatively less overall severity, are artificially boosted by mandatory and voluntary foreclosure prevention efforts that prevent mortgages from entering real estate owned (REO) status, according to a securitization research note by Barclays Capital (BarCap).
Short sales pose benefits to both borrowers and lenders where foreclosure is the alternative. A North Carolina short sale tends to cost the lender less than foreclosure and it spares the borrower the negative credit score implications.
As federally-funded modifications made through the Home Affordable Modification Program (HAMP) grow in frequency and lenders are expected to hold off on foreclosure proceedings, the REO pipeline shrunk, according to BarCap researchers. The foreclosure prevention efforts have had the effect of "artificially" boosting short sales.
"The artificial constraints to foreclosure auctions have resulted in a reduction in REO stock," BarCap said. "As a result, the net volume of REO liquidations has also dropped. As short sales are not affected by moratoria, their rate held up and their overall share in distressed sales increased. It has now risen more than 10 points from the lows to about 35% of overall liquidations. It remains to be seen if this increase will sustain itself once the large number of loans sitting in foreclosure are finally released into REO."
BarCap researchers pointed to the difference in severity seem in foreclosure and short sale scenarios as one of the drivers behind servicers choosing short sales.
Servicers that pursue foreclosure on non-performing loans held within securitization have to make principal and interest advances until the loanís liquidation, BarCap said. If the asset declines in value during the liquidation timeline and it neighbors other REOs, the final selling price will likely come in far below the current broker price opinion (BPO), which leads to high severity.
North Carolina Short sales, on the other hand, pose a shorter timeline during which fewer principal and interest advances are needed. The asset has less time to depreciate, and borrowers have a strong incentive to maintain the property in order to sell it, BarCap said. The idea is that a better-maintained house attracts stronger bids, reducing overall severity in comparison with the REO liquidation scenario.
MOST North Carolina SHORT SALES WILL BE SUBJECT TO THE NEW RULES
This week the US Treasury Department released itís long awaited new North Carolina short sale rules and forms. The new program is called HAFA (Home Affordable Foreclosure Alternatives) and sets forth new government policies for a North Carolina short sale or deed-in-lieu of foreclosure. It is the new rules and procedures for HAMP participating lenders and servicers to follow when a homeowner doesnít qualify for a loan modification under HAMPís rules, who are not able to keep their loan modification current or who request a North Carolina short sale or deed-in-lieu.
The new guidelines and accompanying forms are contained in a 43 page servicing directive sent to lender and servicers this week. It pretty closely follows the terms the Treasury Department announced earlier this year but adds specific forms including (1) a form instruction letter to homeowners; (2) a short sale agreement between the borrower and servicer; (3) a request for approval of short sale (which includes a very simplified HUD 1 and an automatic $1,500 relocation allowance for the borrower); (4) short sale approval and disapproval forms (so the borrower will know why their short sale was rejected; (5) several DIL forms and; (6) a checklist for the servicer to follow.
These rules will be the rules for a vast majority of North Carolina short sales in the future. This is because they will be mandatory for all servicers who particiapate in the HAMP program which includes almost all the major servicers in the country and all FreddieMac, FannieMae, VA and HUD owned or insured loans. The time table for servicers to implement the new rules is anytime between now and April 5, 2010. However, due to the complexity of the new program, do not expect any servicers to implement the new guidlelines between now and the end of this year.