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.