Legislating Short Sales

On September 15th 2010, Representatives Robert Andrews (D-NJ) and Thomas Rooney (R-FL) introduced H.R. 6133 - a bill that would require lenders and servicers to speed up the short sale approval process.

The full detail of the bill can be reviewed here, but essentially it requests that the lender render a decision on the short sale within 45 days. While it’s encouraging to finally see congress addressing short sales, the bill doesn’t go far enough.

But, it’s a start.

After three years of dealing with the current mortgage/housing crisis, most banks have made very little progress – if any at all – in streamlining the short sale process. While I’ll be the first to concede that a short sale isn’t the most desirable option for a lender, it’s far better than what is frequently the alternative - foreclosure.

Every time a home is foreclosed on, it brings the value of neighboring properties down as well, forcing people who borrowed responsibly and have remained current on their obligations, underwater. In a poor economy with high unemployment, more and more people find themselves needing to move, but are anchored to a home they now owe more on than is worth. They’re trapped and if the bank can’t execute a short sale in a timely manner, the borrower will likely be foreclosed on, thus continuing the cycle.

In the history of homeownership, it has not been unreasonable to believe you could buy a house and sell it if need be, without filing for bankruptcy. That is no longer the case.

With many still predicting home prices dropping another 15% or more over the next few years, we could be a decade or longer away from prices returning to where they once were. Banks have been given plenty of time to figure out how to deal with this problem, but they’ve failed. Foreclosures are still rising at a record pace and banks have taken more homes back then they know what to do with. The current process does not work.

So while I understand this bill isn’t likely going to go far, it’s a necessary first step in helping fix a huge problem - and you’ve got to start somewhere…