GSE's Told to Improve Handling of Foreclosure Alternatives

Fannie Mae and Freddie Mac have been directed by their conservator to streamline procedures for foreclosure alternatives including short sales, deeds-in-lieu of foreclosure, and deeds-for-lease.  Under a directive issued by The Federal Housing Finance Agency (FHFA), the two government sponsored enterprises (GSEs) will begin adhering to new, aligned timelines starting in June.

Servicers of GSE loans will be required to review and respond to requests for short sales within 30 calendar days after a receiving a short sale offer and a complete borrower response package.   If the request is still under review at the end of the 30 day period, the servicer will be required to provide weekly status updates to the borrower and to make and communicate a final decision on the request within 60 days of receiving the offer and completed package.  

Short sales have been a concern for buyers, sellers, and real estate professionals because of the bureaucracy required to get approval, not only for the sale where the lender agrees to accept less than the total due on the mortgage as payment in full, but also for any modifications to the original agreement resulting from inspection or appraisal reports. Anecdotal reports abound about sales that failed because of these delays.   

FHFA said that by the end of the year the GSEs will be expected to announce additional enhancements to improve handling of mitigation issues including borrower eligibility and evaluations, documentation simplification, property valuation, fraud mitigation, payments to junior lien holders, and mortgage insurance.   

 "FHFA and the Enterprises are committed to enhancing the short sales and deeds-in-lieu process as additional tools to prevent foreclosure, keep homes occupied and help maintain stable communities," said FHFA Acting Director Edward J. DeMarco. "These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives."