Short Sale Approval and Valuation Issues Continue to Impact Housing Market
Both Fannie Mae and Freddie Mac have implemented policies to expedite the short sales process, including new resources to help determine property values, according to panelists at a property valuation forum during the Realtors Midyear Legislative Meetings & Trade Expo here.
Short sales continue to represent a significant portion of the real estate market. According to the National Association of Realtors, short sales accounted for 9 percent of transactions during the first quarter of 2013.
The short sale process can be frustrating for home buyers, sellers and Realtors given that approvals are often complex, inconsistent, slow and cumbersome. Tim McCallum, director of short sales at Fannie Mae, said the agency is working to expedite the short sales process. “We are improving transparency and have created a dedicated short sales team to negotiate directly with real estate agents,” he said.
“We now order a valuation as soon as an owner indicates they want a short sale, rather than waiting for an offer to be received,” McCallum said. “If there is no response to an offer from the loan servicer within 30 days, the case can be escalated. Our process is to counter every short sale offer.”
A foreclosure can be postponed if a short sales offer is received in a reasonable amount of time, preferably at least two weeks from a scheduled foreclosure. Fannie Mae created a web-based channel to help agents escalate short sale issues and receive confirmation that the agency is actively working to get those issues resolved.
Bob Martin, vice president of valuations at Fannie Mae, said they have a dedicated team to estimate values for all foreclosed and short sale properties. “To help estimate the values of distressed homes, the team uses appraisals, which are required for all short sales, as well as Broker Price Opinions, and data from other internal and external sources, including current listings, pending sales and sold properties,” he said.
The Fannie Mae valuation team includes 2,000 appraisers around the U.S., who have local competency and produce valuations within three weeks. Sales of comparable properties used for valuation need to be within the past 60 days.
Fannie Mae announced a policy late last year to guide the short sale process for all loans owned or guaranteed by Fannie Mae. Freddie Mac’s policy is very similar, and many larger servicers have comparable programs.
Under Fannie Mae’s policy, after a borrower contacts their mortgage servicer to determine eligibility, the buyer and their agent receive a recommended list price and have the opportunity to respond to the valuation. When an agent submits an offer to the servicer, Fannie Mae may review, and if approved it will proceed to closing.
There are a range of eligibility requirements, but if a borrower is 90-days or more delinquent, and has a FICO credit score under 620, then no documents, hardship or contribution are required to qualify for streamlined documentation. Other borrowers must have an eligible hardship, such as unemployment, reduced income, divorce, death or disability.
Borrowers may qualify even if not delinquent if they are at risk of imminent default and should talk to their mortgage servicer. Owner-occupants who are waived of a contribution requirement receive a $3,000 relocation incentive, less any other assistance; loan servicers may contribute additional incentives.
Mortgage servicers must respond to short sale offers within 30 to 60 days, and Fannie Mae may make a counter offer. Any payments on second loans must not exceed $6,000; if accepted, the borrower is released from any liability for the second loan and may not be required to make a contribution.
Among the requirements, sellers must not remain in the property as a tenant, or later obtain title to the property. Outside of relocation assistance, neither the seller nor the buyer can receive funds or commissions from the sale, and no fees can be paid to a third party to negotiate a short sale with the servicer.
Mark R. Johnson, senior vice president at Lender Processing Services Inc., said loan failures in the past five years continue to have reverberations. “Under the Dodd-Frank Act there can be no undue influence on appraisers, they need to be paid customary and reasonable fees, and each state must implement legislation for Appraisal Management Companies, which includes a reasonable separation between appraisers and clients.”
To date, 37 states have passed AMC legislation, and the remaining states have until 2015 to implement. Although clients and real estate agents technically may communicate with appraisers, many lenders have their own rules. “It’s a good idea to provide the appraiser with documentation about comparable sales, facts about the home and local market conditions prior to their examining a property,” Johnson said.
Martin Wagar, chief operating officer at Midwest Appraisal Management Group, said it’s important to match appraisers with the location of the property being evaluated. “AMCs need to improve the appraisal process and not get in the way of the transaction,” he said. “Appraisers must have local competency to produce good appraisals.”
Wagar said appraisers with his firm have at least three years of experience, belong to local MLSs and are members of local associations of Realtors.
Ultimately, the Consumer Federation Protection Bureau will regulate AMCs, but hasn’t released any guidelines. In the absence of case history, attorneys are unwilling to offer opinions on operational policy, so AMCs must rely on their own experience and interpretation of the Dodd-Frank regulations.