Does Wells Fargo Email Signals “End Of Short Sales”

Short sales have dominated the housing market for the past few years with up to 50% of properties for sale in some areas of the country. This trend seemed poised to remain constant until I received an interesting email.
Earlier this week, real estate agents who had been working with Wells Fargo on short sales all received a generic email which read the following:

Subject: !!!URGENT!!! New Procedures Regarding Extenssion and F/C Sale Dates

Hello,
If you are receiving this email, I currently am working on your short sale file or have worked on your file in the past few months.
Due to recent industry changes, we at Wells Fargo will no longer be granting any extenssions for short sale close dates or postponing foreclosure/trustee sale dates.

This anouncement will have a tremendous impact on the housing market since most short sales depend on lenders postponing trustee sales while waiting for lender’s approval. Another challenge is locating buyers who are willing to wait for the lender’s approval which may take several months. Should Wells Fargo approve the sale but the buyer be unable or unwilling to continue with the purchase, no extenssion shall be granted and the property will undoubtedly be foreclosed upon.

As of today only Wells Fargo and Wachovia (owned by Wells Fargo) have implemented this policy regarding short sales and foreclosure/trustee sale dates.

So why? The key phrase in the Wells Fargo email is “Due to recent industry changes”.

These industry changes they are reffering to are the new Fannie Mae Foreclosure Time Frames and Compensatory Fees for Breach of Servicing Obligations which were announced on August 31st. The document outlines the foreclosure time frames for each state and imposes costly penalties to lenders who cause any delays in the management of a defaulting loan.
In short, Fannie Mae is fed up with homeowners who’ve been living in their homes for 6 months to a year without making any mortgage payments.
Wells Fargo’s policy is likely to be replicated by all major lenders such as Bank of America, Chase, and many others in the weeks to come.

It seems as if Fannie Mae is looking beyond the housing recovery and wants to “rip off the band aid” sort of speak, by streamlining defaulting loans and getting them off their books as soon as possible.
This will have a overwhelmingly negative effect on the industry since short sales will most likely no longer be an option for struggling homeowners since many wait untill the foreclosure process to begin before seeking help. This will result in many more bank owned properties arriving on the market, which inturn will cause home values to decrease in the future.

In a way I can understand Fannie Mae’s position and do see the only way for the market to fully recover is to eliminate all of the defaulting loans out there but a delicate balance must be struck since defaulting loans are so closely tied to home values. The further they drop, the more homeowners will default in the future.