New Fannie and Freddie Shorter Short Sale Timelines

We previously told you about new guidelines that were issued by the Attorneys General for the top five loan servicers.  These guidelines were issued specifically for non-Fannie Mae and non-Freddie Mac owned loans.   While there was an obvious need to keep things consistent, Fannie Mae and Freddie Mac are now being required to follow suit!  The Federal Housing Finance Authority (FHFA) wants a uniform set of response times for short sales and therefore directed the GSE’s (Government-Sponsored Enterprises) to establish a similar set of response times for the servicer’s Fannie Mae and Freddie Mac loans. The new guidelines are issued to provide quicker and more efficient short sale timelines.

If you are a real estate professional involved in short sales, this should come as good news!  While many real estate agents avoid short sales because of lengthy and grueling timelines, the new guidelines may encourage more agents to get involved.  Shorter timelines will bring faster commissions and may keep buyers engaged long enough to reach the closing table!

Effective June 15, 2012, homeowners who have loans secured by Fannie Mae and Freddie Mac who are involved in a short sale or are considering selling their home as a short sale should begin seeing faster decisions on short sale offers.  The expected timeframe for a response on an offer will be 30 – 60 days.

Despite the fact that a short sale is much more cost effective than foreclosure, the short sale process has been known to be plagued with delays caused by lack of communication, redundancy, inconsistent policies, etc.  The new guidelines are expected to streamline the short sale process and expedite decisions on short sale offers.

When a homeowner can no longer afford their home, selling their home as a short sale provides several positive alternatives to foreclosure.  It is more cost effective for the lenders, it offers a better credit solution for the seller, it allows the homeowner to purchase a home at a great price and it helps keep the market values up and maintains stable communities because it keeps homes occupied instead of vacant.

With the top short sale complaint among real estate professionals being the response time for offers and final approval, it became vital to establish a uniform set of timelines in order to make short sale transactions more efficient.

Following the same guidelines as the Attorneys General placed on the top five servicers involved in the $25 Billion settlement, the GSE’s are imposing the same short sale timelines for Fannie Mae and Freddie Mac backed loans.  Servicers working short sales where Fannie Mae and Freddie Mac are the investors, will be required to make a decision within 30 days of receiving a ‘completed’ Borrower Response Package (BRP) requesting a short sale, whether it’s through the Home Affordable Foreclosure Alternative (HAFA) program or a GSE program.  If the servicer needs more than 30 days, they are required to provide the borrower with weekly status updates; however, they are to reach a decision no later than 60 days from the date the borrower’s short sale package was received.   The additional 30 days provides a cushion for servicers who need extra time getting a BPO done or who must work with a PMI company for approval.  Regardless, all decisions must be made on an offer within 60 days of receipt of the seller’s ‘completed’ short sale package request.

The key is realizing the timeframe rules are based on the receipt of the seller’s ‘complete’ short sale package.  It is very important to know exactly what is needed to make a complete short sale package!  In addition to the valid purchase contract, all the required forms and financials must be in order and be complete when the package is sent to the servicer.  If documentation is missing, the package is not complete!  Servicer will give the seller’s a timeframe to submit missing documentation.  If required documents are not received by the due date, do not be surprised if the short sale request is denied or cancelled.  If the servicers have a timeline to follow, the seller’s will be required to submit missing documentation on the servicer’s timeline!

If the lender counters the short sale offer, a response to the counter must be made within five-business days.  Once a response is made to the lender’s counter offer, the lender must make a decision within ten days.  The whole point of the new timelines is to allow the facilitation of a short sale transaction to move through the process faster and in a more streamlined fashion.  There is no arguing that short sales are a positive alternative to foreclosure when keeping the home is not an option.  After trying to manage the popularity of these transactions over the past several years, it is about time some set guidelines were forced upon the giants!

Based on comments from Edward DeMarco, the acting director of the FHFA, “the new requirements are to set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

The deadline for servicers to comply with these new timelines is June 15, 2012, however they are all being encouraged to begin using them as quickly as possible.