Fannie Mae Sets Short Sale Rules, Timelines

Fannie Mae issued guidelines to its servicers today improve the timing and methods of handling pre-foreclosure sales, more commonly known as short sales.  The new rules apply to all conventional mortgage loans held in Fannie Mae's portfolio, loans purchased for that portfolio but subsequently securitized into Fannie Mae mortgage backed securities (MBS) pools and those originally delivered as part of an MBS pool.  While not required, servicers are encouraged to follow the guidelines for loans sold to Fannie Mae that are guaranteed or insured by government agencies or which are sold to Fannie Mae under a recourse arrangement as long as that does not preclude Fannie Mae from a full recovery under the guarantee or recourse arrangement.

The policies:

• Establish maximum required response time for pre-foreclosure sale offers submitted on properties securing loans as described above;
• Requires servicers to provide borrowers with status updates during the evaluation process, and
• Eliminates the need for servicers to first conduct an evaluation for alternative solutions before responding to an offer.

The new guidelines are part of the Federal Housing Finance Agency's (FHFA) Servicing Alignment Initiative to better match the servicing and loss mitigation standards of Fannie Mae and Freddie Mac.

The response timetable is triggered by the receipt by the servicers of a Borrower Response Package (BRP) with a pre-foreclosure sale offer.  It establishes deadlines for acknowledging receipt of the BRP, notifying the borrower of any missing documentation, and sets up reporting specifications if the servicer is unable to provide the borrower with an approval, approval with conditions or a denial with a counteroffer within 30 days.  The servicer has a maximum of 60 days to complete the pre-foreclosure sale evaluation and must inform Fannie Mae if exceeding the original 30 day deadline.  There are also requirements for documenting borrower contacts in the loan files.

Under existing rules, when a servicer receives a BRP Fannie Mae requires the servicer evaluate the borrower for either a HAMP modification or for an alternative under the Home Affordable Foreclosure Alternative Program (HAFA).  The new rules allow the servicers to proceed directly to a non-HAFA review without first conducting a HAMP evaluation.

Fannie Mae has set the deadline for complying with the new requirements at June 25 but has urged servicers to implement the changes as quickly as possible. 

The corporation has also set up a Short Sale Assistance Desk to help real estate professionals in targeted markets with problems concerning individual sales.  Fannie Mae completed 70,025 short sales in 2011 and 69,634 in 2010.

A schedule for pre-foreclosure sale milestones can be read here and a complete description of the program changes is located here.