As DS News reported, the U.S. Treasury Department announced new guidelines to the short sale process on Tuesday in hopes of speeding up the recovery of the housing market.
Occurring when a lender accepts the sale of a home at a price below the actual amount owed, short sales have become an increasing part of the real estate business as troubled homeowners seek out alternatives to foreclosure.

Under the Making Home Affordable Program (HAMP), this new plan will aim to assist struggling homeowners by offering easier aid and financial compensation. The short sale process will be streamlined, making it less difficult for companies to complete these transactions. This new legislation will help decrease the amount of unnecessary paperwork while still requiring essential information.

RE/MAX, who claims to have the most versed associates in short sales and foreclosures, fully supports these reforms and said its executives have been promoting this initiative for the past year. David Liniger, chairman and co-founder of RE/MAX, started pushing for a streamlined short sale process shortly after foreclosures began to flood the market and presented specific proposals to government officials in Washington D.C. He believes these new reforms will help many families avoid the trauma of foreclosure and help the housing market stay on the road to recovery.

“Short Sales are absolutely critical as more and more people continue to face foreclosure and as our housing market struggles to recover,” said Liniger. “While not all of our recommended changes were implemented, the Treasury’s new guidelines go a long way in incentivizing both lenders and homeowners to work together to keep homes from falling into foreclosure.”

Through these reforms, the short sale process will be enhanced. Mortgage servicers will have 10 days to accept or reject a short sale request, and after the transaction is complete, it is possible that the borrower could be completely released from debt. Financial incentives will be provided to borrowers selling their home through a short sale and to mortgage-servicing companies completing short sale transactions. The program also facilitates the transfer of ownership by a borrower through a “deed in lieu of foreclosure.” Through this enhanced process, short sale transactions are projected to dramatically increase, resulting in less vacant and vandalized properties around the nation.

As almost one quarter of American homeowners are underwater in their mortgages, Scottsdale, Arizona-based Loan Resolution Corporation said it believes the government’s new legislation will encourage short sales in order to reduce foreclosures and prop up the nation’s ailing real estate market, but the company isn’t convinced the program will be accepted by subordinate lien holders. As part of the reform, subordinate lien holders will be paid up to $3,000 of the short sale proceeds, pending agreement by the investor to share the earnings. The Treasury said second lien holders who want more than this will have to pursue a short sale outside of the federal program.

“While we are excited about the new measures that the Treasury announced, we believe that subordinate lien holders will have a limited adoption rate of the program,” said Travis Hamel Olsen, COO of Loan Resolution Corporation. “It is a step in the right direction, but there needs to be more incentive to subordinate lien holders.”

Jim Satterwhite, COO of Infusion Technologies, can see both sides of these mixed reviews. He believes the new short sale reforms will keep the housing market on the road to recovery, but he said, financially, some subordinate lien holders might not see the profit they’d usually expect from a short sale transaction. He said if they don’t want to participate in the program then they don’t have to release their lien.

As chair of the HOPE NOW short sale committee, Satterwhite explained that this issue was a major point of discussion within the policy but said the goal of the program is to keep people in their home and address the first mortgage. “With any kind of modeling you might do, someone is still going to have a problem with it,” Satterwhite said. “You have to draw the line somewhere.”

Satterwhite believes the new short sale reforms will see marked success. He explained that initially there will probably be more short sales, but more short sale transactions will equate to less foreclosures. He said without the program there is a disconnect between the mortgage holder and the servicer.

“This program very clearly defines what needs to be done to start the short sale process,” Satterwhite said. “The short sale reforms will standardize the expectation and facilitate a quicker decision process.”

According to Satterwhite, Treasury’s new guidelines regarding short sales will make the inevitable happen more quickly, and this will aid in the recovery of the housing market. “The short sale process will be quicker than the foreclosure process, which in turn will help speed the recovery process,” Satterwhite explained.