The Federal Housing Finance Agency (FHFA) wants Fannie Mae and Freddie Mac to streamline their short sale timelines in order to help more homeowners avoid foreclosure.
The FHFA outlined new requirements for short sales last year including the requirement that mortgage servicers review and respond to requests for short sales within 30 days from receipt of a short sale offer. The servicer will have three business days to acknowledge the documentation was received, and must notify the borrower within five days if more paperwork is needed.
Under the new guidelines loan servicers will now be required to:
- Review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package;
- Make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.
In cases where the servicer can’t offer a decision within 30 days following receipt of a complete borrower response package, they must notify the borrower within the 30 day time limit that it’s still under review. After that, each week the servicer must give the borrower an update indicating why a decision has not been made.
We applaud Fannie and Freddie for finally coming out with real guidance with real world timelines for their servicers. There is no question that this will help short sales and the market as a whole.
We’d also like to recognize the National Association of Realtors for their tireless effort in getting the FHFA to address these issues with getting short sales approved. The National Association of Realtors has worked closely with FHFA as well as Fannie Mae and Freddie Mac to help streamline the short sale process and make sure borrowers are aware of a short sale option as an alternative to a foreclosure.
Guidelines Should Improve Short Sale Process
In the past, lenders have been slow to responding to short sale offers which has frustrated both home buyers and distressed homeowners. Buyers will now get a quick response when they make an offer on a short sale home, and distressed homeowners will be able to move out of their homes into more affordable housing sooner and avoid foreclosure.
There’s been a lot of pressure recently for banks to improve response times for short sales. In February last year, Senators Lisa Murkowski (R-AK), Scott Brown (R-MA), and Sherrod Brown (D-OH) introduced a bill, the “Prompt Notification of Short Sales Act,” which requires mortgage lenders to make a prompt decision on whether to allow a short sale at the request of a home buyer.
These guidelines apply to both Home Affordable Foreclosure Alternative (HAFA) short sales and regular short sales. HAFA short sales come under the Making Homes Affordable program from the Departments of the Treasury & Housing and Urban Development. HAFA short sales offer homeowners $3,000 in relocation assistance and full debt forgiveness on all mortgages. HAFA short sales are available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac. The problem is Fannie Mae and Freddie Mac have been resistant to approving HAFA short sales.
HAFA has become a great success with loans owned by the big banks but it is clear that Fannie and Freddie seem do everything in their power to deny borrowers from HAFA short sales every day. We have seen countless cases of borrowers being denied for HAFA when they have a Fannie or Freddie backed loan but we know for sure they would have been approved if it were owned by someone other than Fannie or Freddie.
While the guidelines may not increase HAFA short sale approvals, they are a step in the right direction in making short sales easier and will help more people avoid foreclosure.
Short Sales Are Better Than Foreclosures
The FHFA, which is the regulator for Fannie Mae and Freddie Mac, wants to make doing short sales easier to help more people avoid foreclosure.
Short sales are better than foreclosures for distressed homeowners, banks, and communities. Distressed homeowners can transition from a home they can no longer afford more easily through a short sale. Some banks will even offer a cash incentive to do a short sale rather than letting the home fall into foreclosure. Short sales are better for banks because they yield more revenue for banks than foreclosures. And with a short sale, banks don’t take on the costs associated with owning the property as with a foreclosure. Short sales are also better for communities. The homes stay occupied since they go from homeowner to homeowner, and the average selling price for a short sale is higher than for a foreclosed home, which helps stabilize the neighborhood’s home values.
According to FHFA Acting Director Edward J. DeMarco, “These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”
The new guidelines went into effect for new short sale evaluations conducted on or after June 15, 2012.
Do You Need to Do a Short Sale? Find Out if You Owe More Than What Your Home is Worth