Jan 11, 2013

Tip 47-2012: Fannie Mae - Stabilizing communities or weakening neighborhoods?

A new and unreported policy regarding Fannie Mae short sales has made its way to Virginia.

Mrs. Smith wants to sell her home. Actually, Mrs. Smith needs to sell her home. Her husband, the sole breadwinner for the household, has recently passed. With the drastic reduction in household income, Mrs. Smith can no longer afford to maintain her current home, so she is relocating to another state to live with her daughter and son-in-law. Mrs. Smith discovers that her house is worth less than what she currently owes on her mortgage, a mortgage that is owned by Fannie Mae. Mrs. Smith begins to research how to go through a short sale of her house.

Although Mrs. Smith is not real person, her fictitious circumstances replicate scenarios for a number of homeowners across the country.

In a normal short sale, the decision for a property's purchase price is based on the Broker Price Opinion (BPO), a value that is obtained by the short sale servicer on behalf of the investor. Yet, we are actively negotiating a case in which Fannie Mae is requiring a purchase price that exceeds the property value. One Fannie Mae servicer has even said that Fannie Mae's required net after a short sale is calculated not only with the BPO but is also based on the investor's loss. If an offer is at fair market value but does not meet the investor's required net, Fannie Mae counter offers with a number that greatly and ridiculously exceeds a property's value.

For example, there is a current property whereby the purchase price is $125k. The negotiator insists that Fannie Mae guidelines in this particular short sale require a listing price of $150k with a net to Fannie Mae of $132k. The BPO is $105k. The listing history shows that the property was initially listed at $150k. After no activity for about 40 days, the listing price was reduced to $125k. At this point, a contract was executed for $125k. This offer is even close to the buyer's appraisal which came in at $126k. At this time, we are still awaiting short sale lender approval for this case.

Initially, I was convinced that the negotiators were working from an inaccurate understanding of the Fannie Mae guidelines. Yet, I am now concerned that there exists an unreported new policy regarding Fannie Mae Short Sales, a policy that will ultimately lead to unsuccessful short sales. Not only will buyers not pay for properties above market value, but the property will not appraise thereby cancelling any financing opportunities. In fact, in talking to one of the servicers about the "new program," this program is not having much success because the numbers used to negotiate exceed what the property is worth. If Fannie Mae has guidelines to prevent foreclosure, why institute a policy that leads to foreclosures?

No potential buyer will pay more than fair market price for a property. No new lender will loan more than fair market price for a property. In fact, we have never negotiated a successful short sale based on what the investor is going to lose; it has always been based on what the property is worth. How will the Mrs. Smiths of the country be able to move on with such unreasonable guidelines dominating the housing market?

Fannie Mae declares, "Our goal is to help as many families as possible stay in their homes, protect property values in communities across the country, and build a stronger foundation for the U.S. housing market."
Yet, recent transactions with Fannie Mae indicate an intention to do the exact opposite of the declared goal.

To see how this matter has already made the news in Phoenix, Arizona, watch the following clip from September 28, 2012: Fannie Mae phoenix short sales.

Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions.

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