As one of the largest mortgage lenders in the country, Bank of America has great sway with the rest of the industry when it makes a decision contrary to the norm. Such is the case with their recent announcement of plans to streamline the short sale process in order to conclude a deal in 20 days or less. Right now the typical short sale can take months while a bank goes through the paperwork process and verifies the legitimacy of a distressed homeowners needs.

According to an April 10 report from the Tampa Bay Times, Bank of America’s new program could ostensibly “stem headaches for thousands of distressed homeowners who want to sell houses in short sales.”

Under the program the bank will limit the total number of counteroffers to two and will require less paperwork from the distressed homeowners. Furthermore, realtors will be required to enter all of the needed information into a central database so that all communications between Bank of America and the distressed homeowner come through that system.

“That’s a good development,” economist Sean Snaith told the Times. “Hopefully, other banks will follow. Finally, there is some evolution.”

According to the paper not all those involved in the industry are convinced. They cite the fact that it typically takes anywhere from 3 to 6 months for a distressed homeowner to complete a short sale. Central to the problem, they say, is the fact that banks routinely ask homeowners for paperwork showing they have a legitimate need to sell short. Critics claim banks ask for this paperwork repeatedly throughout the process, thus slowing it down and causing unnecessary headaches for homeowners.

The Future of the Foreclosures

Among several of the sources cited in the Tampa Bay Times article there was consensus that the move by Bank of America was positive for the overall housing market. As the thinking goes, the market cannot rebound until a good portion of the currently distressed homes are settled in the hands of new owners. If they’re right, and other banks follow the example set by Bank of America, it is entirely possible the U.S. could see a significant reduction in the number of distressed homes before the year is out.

However, as attractive as this might seem there is an inherent weakness. By definition, a short sale is a situation in which a bank agrees to accept less money for a house than is still owed on the mortgage. Throw in the fact that many of these distressed homeowners are underwater, and the disparity between what the new buyer wants to pay and what the current owner owes is greater in real terms. At the end of the day it is the bank that eats the loss with every short sale.

The US economy can probably withstand these losses for now. But as the banks eat more and more losses, and Washington continues to try pushing homeownership on those who can’t afford it, it’s only a matter of time before we are on the verge of another crash. Banks have to be left alone, once and for all, to allow the market to take its course. They will suffer with each short sale but they will also become leaner and more financially fit.