Cathy Yamauchi's house is filled with moving boxes even though she's likely not going anywhere, at least not anytime soon. Since November, she's been waiting for the company that services her mortgage to respond to her request for a short sale.
"It's actually kind of depressing because you're looking at all your belongings boxed up and you're just waiting, waiting," she said. "It's a waiting game."
Short sales involve selling a home at a loss — less than what the homeowner owes — and most people who have been through one probably would not describe it as a short process. But new federal guidelines could push banks to approve those sales faster.
An expedited process could help Yamauchi, who has been financially strapped since she and her husband divorced a couple years ago. That left her with the mortgage on their house in Ramsey.
Yamauchi said her income as a physical therapist subsequently dropped, and she can no longer afford the $2,100 monthly payments. She stopped making them nine months ago.
A couple months after listing the house at a higher price, Yamauchi decided to sell the house "short" for $230,000, about $50,000 less than what she owes. A buyer made an offer. Since November, her realtor has put in two short sale requests to the mortgage servicer. That's the company that collects mortgage payments and communicates with homeowners on the behalf of the holder of the loan.
So far, silence.
"It would be nice if they could at least have some sort of deadline, otherwise, you're living in limbo," Yamauchi said.
Pretty soon, many loan servicers will have a deadline.
But there are questions about how effective the deadline will be.
New provisions take effect next month for mortgages controlled by Fannie Mae and Freddie Mac, which account for about 60 percent of the U.S. mortgage market.
The companies that service Fannie and Freddie mortgages will be expected to make decisions on short sales within 30 days. The servicers can get a one-month extension, but then they must provide weekly status updates to homeowners.
Yamauchi's loan is controlled by Freddie Mac, so theoretically, she could benefit from the rule change. But her real estate agent, Chris Willette of Edina Realty, doubts it. He thinks the new rules will be toothless.
"Quite frankly they're still going to give the same excuses, that they've lost the paperwork, that the loan number wasn't on every page of the paperwork," Willette predicted. "I don't think it's going to do much,"
Willette worries servicers will just say "no" faster. He thinks they're ill-equipped in terms of staffing and resources to actually approve short sales more swiftly.
There have been problems, acknowledged Bart Vincent, senior vice president of short sales for Wells Fargo. The bank is a major player in the mortgage servicing industry, both in Minnesota and nationally, though it has no involvement with Yamauchi's case.
Vincent said responses have been slow in the past.
"Certainly in some cases there can be some challenges with all the multiple parties involved in a short sale and getting approval from everyone that's involved," he said.
Vincent said servicers have to wrangle consent from a lot of different stakeholders, including the lender or investor who controls the loan, mortgage insurance companies and sometimes a second lien-holder.
But Vincent said Wells Fargo has become more nimble at short sale approvals. He said the bank will be able to manage Fannie and Freddie's expedited timeline.
"We think that quicker decisions for short sales are better for everyone, the investor, the servicer and the borrower," he said.
Wells Fargo can generally recoup more of the original loan amount by doing a short sale than by waiting for a loan to go into foreclosure, which usually results in a much lower sale price, Vincent said.
In some cases where Wells Fargo not only services but also controls the mortgage, the bank will offer homeowners financial incentives to do short sales.
There are signs that short sales are speeding up. According to the trade publication Inside Mortgage Finance, the average time short sales spent on the market for the three months ending in April was about 15 and-a-half weeks. That's three weeks shorter than the average time short sales spent on the market in September 2009, when the trade group's records start.
The fact that mortgage servicers like Wells Fargo are coming to that conclusion on their own is significant, according to Guy Cecala, publisher of Inside Mortgage Finance. He said previous attempts by the federal government to hasten short sales haven't done much.
Cecala argues that the new guidelines could have limited effect because Fannie and Freddie don't control most troubled loans.
"Those are the ones that are the most in need of assistance, are the non-government loans," he said.
But Cecala said that doesn't mean the new Fannie and Freddie rules are pointless. He said their support of faster short sales will set a standard for the lending industry.