Freddie Mac / Fannie Mae – New Mandated Law – November 1, 2012
Fannie Mae and Freddie Mac are adopting new guidelines to streamline the process for short sales, which most real estate observers expect will outpace foreclosures in the coming year.
The guidelines, required by the Federal Housing Finance Agency and effective June 15, would require servicers of mortgages backed by Freddie and Fannie to review and respond to requests for short sales within 30 calendar days of receipt of a buyer’s offer.
A short sale is a transaction in which a lender agrees to accept less than the amount owed on the mortgage. It is a “strategic default,” designed to get a borrower out of financial trouble without having to go through the drawn-out legal tangle of the foreclosure process.
A short sale does affect the seller’s credit score, reducing it as much as a foreclosure would, according to Fair Isaac Corp., which developed the system.
On average, according to recent data from foreclosure search engine RealtyTrac, short sales are taking 306 days from start to finish, compared with 113 days in 2006 as the housing market started to unravel.
Area real estate agents who handle such transactions have acknowledged that they do take a long time to complete, and that delays often result in loss of the sale.
But lenders are becoming more accommodating, though they have issues with short sales because they have been abused by unscrupulous investors and others, perhaps to the tune of $375 million in annual losses nationwide.
In January, there were more than 35,000 short sales nationwide, on pace for more than 105,000 pre-foreclosure sales for the first quarter. That would be the highest quarterly total since the first three months of 2009.
This is not the first time the government has acted to accelerate the short-sale process. In late 2009, the Treasury Department proposed financial incentives and simplified the procedures for completing them. That included a $1,000 payment to servicers and a maximum of $1,000 to go to investors who signed off on payments to subordinate lien holders, the Treasury said. Borrowers were to receive $1,500 in relocation expenses.
The rules, which took effect in April 2010, were supposed to reduce the short-sale process to 10 days, but didn’t.
The pending Fannie Mae/Freddie Mac guidelines will mandate weekly status updates to the borrower if the short sale remains under review after 30 calendar days.
Servicers also will be required to make and then inform borrowers of final decisions within 60 calendar days of receipt of an offer.
By the end of the year, Fannie and Freddie will announce other “enhancements” to the short-sale process, including borrower-eligibility evaluation, simplified documents, and payments to subordinate lien holders.
Housing Finance Agency acting director Edward J. DeMarco said the changes were being considered “additional tools to prevent foreclosure, keep homes occupied, and help maintain stable communities.”