Mortgage Insurance and Short Sales

There are many real estate agents who are handling an increased volume of short sales due to today’s complex housing market.  And while short sales can be a win-win situation for everyone, if they are not executed and understood properly, they can cause many complications.  Every short sale scenario is unique in its own way.  However, the primary benefit is always the same – to avoid foreclosure and help save the homeowners credit record.

The Role of Mortgage Insurance in Short Sales

Mortgage Insurance (MI) is required when a property is purchased with less than 20% down.  Once the homeowner’s mortgage servicer decides the sale will meet all the requirements, they then must get approval from the mortgage insurance company as well. 

Mortgage Insurance companies usually consider a short sale request for two reasons – to provide the homeowner with an alternative to foreclosure and for loss mitigation purposes. 

Homeowner Contributions and Pitfalls

Most short sales occur due to a homeowner’s financial difficulties.  However, some situations are questionable.  When there does not appear to be financial difficulty so severe to need a short sale, the mortgage company and mortgage insurer will dig much deeper into the homeowner's personal and financial situation.

Making the Short Sale Work

Regardless of the obstacles that can arise during the short sale approval, the key in a successful short sale is the turnaround time to process each request.  Many mortgage companies and mortgage insurers are expediting the short sale approval process.  In 2010, it was not unusual for one company alone to review 10,000 or more short sale requests, creating the need for expediting the entire process.