Here's some good news for investors interested in "short sales" -- that's where home owners who can't afford their mortgages sell their houses at substantial discounts, often below what they owe on the loan.

Fannie Mae, the single biggest player in the American mortgage market, plans to crank up the pace of short sales on properties in its bulging portfolio. Fannie intends to "streamline" procedures to enable pre-foreclosure sales to speed through what is currently an extended, and often complicated, process.

Fannie says it plans to "pre-approve" certain short sales--a major change from current practices--and wants to provide higher commission incentives to realty agents who can connect sellers with qualified buyers.

Fannie Mae thus joins its rival, Freddie Mac, who months ago began emphasizing faster, more efficient short sales - to great success.

Freddie Mac's program, which allows some loan servicers to submit short sale packages with minimal documentation, doubled the number of completed short sales for the company in the last quarter, according to a report in the American Banker, a financial trade journal.

Investors like Freddie and Fannie want to speed up the pace of short sales because -- to put it bluntly -- it saves them a ton of money. They avoid the crushing costs of foreclosures. Plus, they generally get a much higher payoff percentage of what they're owed.

Despite complications -- ranging from uncooperative banks holding second liens on properties to title, financing and inspection problems -- short sales are booming. Some industry estimates suggest that so far this year, one of every five home sales in the U.S. has been a pre-foreclosure transaction of one sort or another.

The opportunities for small investors and realty brokers here are huge. But investors need to have patience and the ability to handle what are sometimes contentious negotiations.

For example, Nancy Gusman, a Maryland real estate attorney, told Realty Times that "everybody in these deals is after every last dollar they can negotiate, and sometimes they hold out forever."

The mortgage holder is looking for the highest possible current appraisal to justify the highest possible payoff price; the short-sale buyer is looking for the lowest possible appraisal to justify a bargain-basement price for the house; and of course, listing realty agents want a fair commission for their work in putting the transaction together.

The bottom line here for investors and agents: Fannie Mae's forthcoming policy emphasizes getting short sales DONE -- faster. That, in turn, should mean more opportunities for everybody -- investors, first-time home buyers, and brokers alike.

Published: April 11, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.