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Fannie Mae accused of forcing underwater borrowers into foreclosure

Fannie Mae policies have changed considerably over the last year, having a widespread impact on the short sale process, which some say have led them to force underwater borrowers into foreclosure.

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Is Fannie Mae in the Hot Seat?

Over the last few months, there has been quite a bit of Internet squawking about the GSEs approach to short sales and foreclosures, particularly Fannie Mae (who seems to rule the roost). Allegations are being made that Fannie Mae is forcing underwater borrowers into foreclosure by not approving short sale transactions. Specifically, there is a national trend where short sale values on Fannie Mae properties are coming in significantly above market value. And, since nobody can qualify for a loan above market value, the properties then end up in foreclosure.

In looking back over the last few years, this may not be anything new. In a Fannie Mae Announcement made in August of 2010, Fannie Mae stated that they would penalize servicers that “languished” too long in the processing of short sales. Additionally, Fannie Mae has long had a policy of frowning upon short sales for borrowers that have missed more than 12 months of mortgage payments.

The Irony of Streamlined Short Sales

On November 1, 2012, Fannie Mae and Freddie Mac stated that they would have streamlined guidelines for the processing of short sales. Those guidelines stated short sales would be processed in no more than 60 days, as many of the tasks that were previously delegated to Fannie Mae and Freddie Mac could now be handled directly by the servicers.

Yet the irony is that the valuations are still coming back too high, forcing distressed borrowers into foreclosure. Mortgage servicers could now quickly decline short sales within the 60-day “streamlined” period.

Fannie Mae Foreclosures

When Fannie Mae lists an REO, the property is generally listed above the current market value. They advertise the property and review all offers but prefer for borrowers to obtain a HomePath® loan. With the Fannie Mae HomePath® loan, no appraisal is required. With no appraisal, the buyer could pay 10% or even 20% over market value. The new owner of the Fannie Mae REO now owns a property with a loan more than market value; the owner is now upside down like the short sale seller that couldn’t get his short sale approved just a few months before.

One additional policy that people are chattering about is the Fannie Mae flipping rule. If an investor buys a Fannie Mae owned property, there is a deed restriction which states that the property cannot be sold for more than 120% in the first 90 days—thus discouraging rehabilitation experts from purchasing Fannie Mae properties.

Where Does this End?

The overall consensus seems to be that these Fannie Mae policies punish the distressed borrower and work to the financial benefit of Fannie Mae. You could argue that any entity can do what they want. It’s debt settlement. If Fannie Mae does not want to settle with the borrower, that’s their choice. However, since the United States Government (that’s us folks) owns the largest stake in Fannie Mae, these policies are definitely giving people something to squawk about.

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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3 Comments

3 Comments

  1. Brad Officer Real Estate

    February 11, 2013 at 4:08 pm

    I’m seeing valuations come back way too high on almost every short sale. The valuation dispute is now a common process in almost every short sale.

    The other trend I’m seeing is the servicer offering DILs when values are off. Sellers are jumping at them!

  2. Lisa Johnson Sevajian

    February 11, 2013 at 5:06 pm

    Thank you for shining some light on a touchy subject in our industry. By demanding higher than market sale prices for short sales they create quite an inventory to resell as foreclosures. Marking up the prices on the inventory as foreclosures and creating incentives for borrowers to buy them without appraisals eliminates necessary oversight and protection for the borrower. The buyer is then locked into a loan higher than market value and most likely upside down from the day they take ownership. The fannie mae backed loans that I am working on as short sales come back with bpo evaluations that are laughable with no rhyme or reason and certainly no consideration of the actual comps.

  3. Michelle DeRepentigny

    February 12, 2013 at 9:33 pm

    There are many documented cases of Fannie Mae issues with short sales. However, I question the statement “When Fannie Mae lists an REO, the property is generally listed above the current market value.” In addition to the BPO provided by the listing agent, Fannie Mae is mandated to obtain an appraisal prior to marketing the property. Fannie Mae also tracks the execution rate (between appraisal value and sales price) and penalizes appraisers that trend significantly low OR high.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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