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Short sales of homes are becoming increasingly common as sellers and lenders look to move past problem loans, area Realtors say.
A short sale occurs when the home is sold for less than what is owed on the mortgage loan, and the seller is relieved of the difference. It's up to the lender to agree to it; area Realtors say lenders have become more likely to do so in the past year, as they avoid the costly and time-consuming foreclosure process.
Because of the rapid increase in housing prices in the Fredericksburg area and subsequent declines, many people who purchased in the past few years are "underwater" on their loans. As unemployment has increased and initial low "teaser" rates have adjusted, many are finding it difficult to make their payments.
That's led to a foreclosure rate in the Fredericksburg area that's among the highest in the state, though it pales in comparison to some of the worst-hit areas in the U.S.
Foreclosures lead to "credit craterization" for individuals losing their home, said Ernie Dill, a Realtor for Coldwell Banker Elite who handles a good number of short sales. They're often unable to get a loan for several years. Their credit ratings can tumble by several hundred points, which can affect employment status, particularly in jobs requiring security clearances.
Foreclosures also have a negative effect on housing prices areawide, particularly in neighborhoods with multiple such properties. That's been blamed for the 30 percent to 40 percent drops in median housing prices over the past few years in the area.
Because of these effects, Fannie Mae and Freddie Mac have been communicating to lenders that foreclosure prevention is a top priority. The two companies, which own a large percent of U.S. home mortgages, have been increasing cash incentives to banks that work out mortgages. Freddie Mac now offers banks $2,200 for each short sale completed, said spokesman Brad German.
Attempts to work out loans typically start with refinancing or modification of payments. Millions of Americans have taken advantage of historically low interest rates and refinanced, but millions more are so far underwater that their loans can't be refinanced. A short sale then becomes a way to get out of the loan before it moves to foreclosure.
"Short sales are one of the tools to avoid foreclosure if all other workout options are exhausted," said Amy Bonitatibus, Fannie Mae spokeswoman. "It's always in the best interest of the home buyer, the community and the investor to avoid foreclosure."
Fannie and Freddie have been ramping up their efforts to stem foreclosures since the beginning of last year, and perhaps as a result area Realtors are noticing that lenders are more likely to consider a short sale.
That wasn't the case a year ago, said Jane Wallace, one of the owners of Re/Max Bravo in Spotsylvania County. Most Realtors were inexperienced handling short sales, and banks weren't making it a top priority.
The process still isn't easy, and it often takes several months for the lender to review the short sale request and make a decision. Not all requests are approved. But the process has gotten easier, Wallace said.
"We are definitely seeing a real turnaround by the banks," she said.
According to data from Metropolitan Regional Information Systems Inc. for the Fredericksburg area, 11.7 percent of the homes actively listed on the market at the end of March were short sales. Short sales comprised 8.2 percent of the overall sales that month. Foreclosures represented 48 percent of the overall sales.
Wallace said she recently completed a short sale for a homeowner in Spotsylvania's Fox Point neighborhood that was underwater by several hundred thousands dollars.
The owners took about a 50-point hit on their credit after missing several payments, and they had to tap their 401(k) fund to bring $10,000 to the closing table, but they're now free from the unaffordable loan. Short sales don't show up on your credit report, other than the payments that were missed.
"It has preserved their credit," Wallace said. "It has relieved them of their financial burden."
Bill Freehling: 540/374-5405
Email: bfreehling@freelancestar.com
| Short sales, foreclosures making up high percentage of areawide housing sales
Foreclosures and short sales are making up a high percentage of real estate transactions in the Fredericksburg area, according to data from Metropolitan Regional Information Systems Inc. These data from March include Fredericksburg, Caroline, King George, Spotsylvania and Stafford. There were 2,660 active listings at the end of March. Of that number, 210 were bank-owned foreclosures. That's 7.9 percent of all actives. Short sales comprised 311 listings, or 11.7 percent of all actives. Thus, 19.6 percent of all active listings at the end of March were distress sales. 341 homes sold in March. 164 of those sales were bank-owned foreclosures, or 48.1 percent of all sales. There were 28 short sales, or 8.2 percent of closings. Hence, 192 home sales, or 56.3 percent of the total, were distress sales. Distress properties: 521 listings, 192 sales. 2.7 homes were listed for every sale. Non-distress properties: 2,139 listings, 140 sales. 15.3 homes were listed for every sale. --Data provided by Ernie Dill, a Realtor with Coldwell Banker Elite who specializes in short sales |
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Distressed homes are selling at a much faster rate than homes in general. |
