Fannie Mae and Freddie Mac (collectively, Frannie) are introducing new policies to expedite the shortsale approval and closing process. These policies become effective for Frannie loans on all shortsale offers servicers receive after June 24, 2012. Servicers are encouraged to implement them immediately.
Through June 24, Frannie requires servicers to evaluate borrowers requesting a shortsale for the Home Affordable Modification Program (HAMP) first as a step towards avoiding the shortsale. If the borrower qualifies under HAMP but is not successful, servicers must then evaluate the borrower for a Home Affordable Foreclosure Alternatives (HAFA) modification.
The June 24th changes allow servicers to avoid HAMP and proceed directly to a non-HAFA review when a borrower submits a shortsale request.
A borrower requesting a shortsale agreement will receive a foreclosure prevention solicitation letter from the servicer which the homeowner may respond to by submitting aBorrower Response Package to their servicer. The purpose of completing the response package is to explore alternatives to foreclosure. However, to pursue alternatives the homeowner must demonstrate their inability to pay through documentation including:
- a Borrower Assistance Form;
- Internal Revenue Service (IRS) Form 4506T-EZ to confirm earnings;
- hardship letter and documentation; and
- income documentation.
Servicers will respond to the borrower within 60 days of receiving a complete Borrower Response Package. If they have not responded within 30 days, they must notify the borrower the evaluation request is under review and provide weekly verbal or written updates as to the paperwork status, indicating why the evaluation remains pending.
A deadline to respond to an offer to purchase (submitted to the servicer by the borrower via a HAFA Short Sale Agreement, Form 184; or Request for Approval of Short Sale Agreement Without Short Sale Agreement, Form 185) will be implemented for servicers of a HAFA shortsale (which is a three month process). Servicers must respond within ten days of receiving a purchase agreement the homeowner has entered into with a buyer.
If the shortsale purchase agreement price does not meet the Minimum Acceptable Net Proceeds (MANP) analysis, the servicer must include a counterproposal with the denial. If the purchase agreement price does not meet the lender minimum shortpay amount the servicer must request Frannie’s approval of the shortsale price. Frannie will respond within ten business days of receiving the request.
Servicers must acknowledge receipt of a non-HAFA shortsale offer within three business days. If the offer is incomplete, the servicer must provide the borrower with a checklist of what is required within five business days. The servicer has 30 calendar days after receiving a complete Borrower Response Package and the homeowner’s shortsale purchase agreement to respond with an approval, denial or notification the shortsale is still under review.
Status updates must be provided to borrowers when a shortsale is delayed.
Shortsales are short in name, only. The animosity toward taking a loss on a loan is becoming more brazen by the day.
What we have is an inquisition into the seller’s capacity to pay, confirmed by the IRS as an involuntary accomplice, all without concern for the greater good of the borrowers who were taken in by our nation’s housing policy, lured by lenders, builders, broker trade unions and the American Dream.
Instituting a uniform timeline for servicers seems like it would result in quicker processing times. However, lenders will not likely conform since they lose in the effort. Ah, that is but one of the problems.
Real estate professionals speculate banks have neither the staff nor the time – and we will add brainpower – to adjust to Frannie’s new shortsale timeline. However, Bank of America (BofA) recently launched yet another effort to decrease their shortsale timeline to three weeks. As the number of shortsales they process continues to grow, they realize foreclosures are more debilitating. This leaves many lenders looking to BofA to set the standard for future conduct – a frightening concept for many who’ve dealt with the nefarious promises from BofA.
Frannie’s new timeline institutes a 60-day maximum shortsale review process, which seems quick compared to unaffected Federal Housing Association (FHA) loans, which often take more than a year to complete.
Worse, shortsales are a lose-lose situation for everyone. The homebuyer gets nothing for his efforts that he would have received had he simply defaulted and remained in the property through to the trustee’s sale, including the same amount of ding to their FICO score. Even agents do not want to work on them, farming out the lender shortpay aspects to full time negotiators. Increasingly, buyer’s agents refuse to show shortsale properties, limiting their time spent on them to preparing and submitting an offer. Homebuyers intending to occupy the property hate them as speculators continually best them in terms and price nearly every time.
Quicker turnarounds will be nice, but the real estate market will essentially continue spinning its wheels. Titles to homes will change hands in a not so rapid-fire game of musical chairs fought out by novice speculators vying to assume the seller’s risk of finding a homebuyer later and at a higher price. All the while, the actual homeownership rate loses traction every day as this sham treatment in the resistance of shortpay approvals continues.
Nothing has, in the end, materially changed.