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Changes at Fannie Mae Affect Short Sales and REOs
Fannie Mae announced last August, in sort of a roundabout way, that it was not extending HAFA past December 31, 2012. Which is actually a blessing in disguise for many short sale agents as Fannie Mae HAFA short sales were risky from the get-go for sellers. That’s because Fannie Mae had so much red tape that by the time a seller jumped through of all the hoops, her home could be headed for foreclosure and Fannie Mae was not about to stand in the way of a foreclosure. I’d say that Fannie Mae never met a foreclosure sale it didn’t like.
The thing is if a home goes to foreclosure, then Fannie Mae can put it back on the market as an REO and hope some clueless homebuyer will opt for its HomePath financing program. There are plenty of clueless buyers to go around. The deal with HomePath is there is no appraisal. Is Fannie Mae stupid? No, Fannie Mae may be many things but stupid is probably not one of them. Without an appraisal requirement, Fannie Mae can charge a premium for the REO, and it often does. Sometimes, that premium results in a price that is 10% to 20% or more over market value. That means Fannie Mae HomePath homebuyers are underwater the day they close escrow. Isn’t that brilliant? That’s our government.
Fannie Mae has also changed its short sale procedures from a standard short sale to a traditional short sale HAFA II. It has recently put in place requirements that prevent a buyer from flipping a short sale. That’s OK because most buyers of a short sale owned by Fannie Mae are willing to live in the property and therefore do not want to flip it. They are the most likely buyers willing to put with the crap they have to endure to buy a Fannie Mae short sale. Many investors are not willing to walk down that road with Fannie Mae.
The restrictions state a buyer of a Fannie Mae short sale can’t sell that home within 30 days from closing. OK, that’s not so bad. However, a buyer also can’t sell within 90 days for more than 120% of the sales price. Fannie Mae doesn’t want a buyer to profit from its misfortune. Nothing wrong with that, either. It’s still willing to pay a incentive to the seller to do a Fannie Mae short sale, though, under certain conditions.
Real Estate agents, on the other hand, are screaming about Fannie Mae price fixing — because so many of those Fannie Mae REOs are overpriced — but I don’t know if you can call it price fixing. I am not a lawyer. I suspect a seller can choose to sell a home at whatever price it wants. This is America. There’s a sucker born every minute.
Feds to Allow Current Mortgage Payments for Short Sales
I realize how horrible it sounds when our government tells a seller that she cannot be current on her mortgage payments if she hopes to do a short sale. For years, the government has been telling people to stop making mortgage payments, if you can believe that. It’s true. Fannie Mae and Freddie Mac, government-sponsored entities, require a default for a short sale. Come November 1, though, all of that changes. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, yesterday announced new streamlined short sale guidelines, effective November 1, to permit a short sale in eligible cases of hardships without a delinquency. It’s about time!
This means the feds will allow current mortgage payments for short sales. What a relief for sellers worried about delinquencies. The thing people don’t realize is there are different types of short sales. The type of short sale depends on the investor. Rules that govern a traditional short sale do not apply to Fannie Mae and Freddie Mac, including other types of short sales such as FHA or VA or CalVet. And let’s not even talk about the grandmother and granddaddy of all short sales: the Fannie Mae HAFA short sale or Freddie Mac HAFA short sale. Many short sale agents would rather be forced to walk barefoot across hot coals than to do a Fannie Mae HAFA short sale or a Freddie Mac HAFA short sale because those are painful enough for everybody.
Not only will a seller be able to remain current on her mortgage if she has a Fannie Mae or Freddie Mac loan, but the new guidelines give servicers delegated authority. Banks that service these loans can determine whether the seller’s hardship will qualify for a short sale. Common hardship reasons are:
- death
- divorce
- unemployment
- relocation
- medical
Plus, if a borrower must relocate due to a commute of more than 50 miles to work, which is a fact of life for many of us in California, that constitutes a hardship as well. This is a welcome relief for this Sacramento short sale agent and my sellers in Sacramento. Being current on mortgage payments for a short sale is a huge improvement. It’s like we’ve been beating our heads back and forth in the doorway for years. You know how good it feels to stop!
Now if we can just get Fannie Mae to stop sending short sales to auction because the short sale can’t close prior to the trustee’s auction date, we’ll have something to truly celebrate. We need a way to postpone the auction in a Fannie Mae short sale. Come on, FHFA, I know you can do it. We’re rooting for ya in Sacramento. But for now, us hungry little squirrels, we’ll take the peanuts you toss.
