About Short Sales

If one is presented with two investments of equal risk, the informed investor will choose the investment that offers a higher return rate. This is fundamental to personal investing and is called Risk Aversion.

If the investment with greater risk will yield greater returns, an individual may choose greater risk as part of the Risk Aversion process.

Government and mortgage debt traditionally differ by 1.5 percent. The difference between return rates is called the “spread.”

However, the spread started to grow in July 2007.July 2007 marked the “official” start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market’s perceived risk of investing in them.

The “spread” almost doubled in a year. On September7, 2008 the takeover of Freddie Mac and Fannie Mae was announced by the federal government. This action offered the “risk free guarantee” for mortgage debt. After the announcement of the takeover the “spread” decreased.

This is one reason why mortgage rates fell Monday and why they should continue to stay low over the near-term. With the U.S. government backing the mortgage market, there’s no room for the risk premium that helped keep rates high this past year.

This will not mean more people will be able to get mortgages. However, those who qualify may find that financing is cheaper.

In the communication with the lender when trying to facilitate a Short Sale, the Hardship Letter has to be very effective to gain sympathy and assistance from the lender with the short sale. The sadder you make it and the more proof you can provide regarding the financial situation the better. Describe how the financial situation came about and make a plea to the lender to work with you on the payments. Lenders know there are extenuating circumstances and will accept the fact that a job was lost, medical bills are overwhelming or some other serious problem has affected your financial situation. Be honest with them and share as much of your present situation as you can with them. Think of the lender as your friend and they will respond in the same manner.

Don’t be shy on the phone when you call the lender. It may take several calls (don’t give up, just call again later if you don’t get the answer you want) but eventually you will talk with the right person. The person you want is the one responsible for handling short sales. If you get someone else they may not take the right information from you or give you the right information that you need. The most important person is the one that can make a decision regarding your situation. Ask the right questions and you get the right answers.