Mortgage Talking Points Blog

New Rules for Servicers – Short Sale Processing Rules Effective 6-25-12

 What You Need to Know About the New Rules for Faster “Short-Sale” Turnaround Times! 

The horror stories are everywhere.  Short-sale approvals have dragged on and on.  Borrowers and real estate agents don’t hear a peep from anyone.  Clients give up and let the home go into foreclosure.

That’s all in the past (we hope); the new short-sale timeline process has changed effective June 25, 2012. Fannie Mae and Freddie Mac have introduced policies to expedite the pre-foreclosure sale process.

Now, mortgage servicers must follow the policies outlined for all conventional mortgage loans held in either agency’s portfolio. Servicers are “encouraged” to follow these requirements with respect to mortgage loans sold to either Fannie or Freddie, including FHA, VA and USDA loans they may have purchased.

Knowledge is power, and by knowing the required timelines to process a short-sale approval, you’ll be able to challenge those lenders who are dragging their feet and not getting the job done. 

Why is this important to loan officers?  This topic can create new contacts with real estate offices that specialize in short sales, and let them know that the servicers now have a maximum number of days to complete certain segments of the process to short sale a home. 

This new information can provide peace of mind to the homeowner selling the home on a short sale, and provides an expectation for the new buyer that is looking to buy the short-sold home.  Once a tangled mess of ‘we will get to it when we get to it’ attitude, the servicer is now obligated and required to meet these time frames, removing the owner’s and buyer’s confusion and uncertainty when faced with the unknown of ‘when will this all end.’

Possible benefits of having specific timelines:

• You can schedule more effectively for rate locks
• You can be more precise on your expected closing date for the new buyer
• You can be an active participant in the education of the realtor who is assisting in the short sale, developing deeper ties and stronger relationships, and in turn bringing you more qualified homebuyers that can actively bid on properties being short sold and providing real expectations.

Here’s the short version: 

• Establishes maximum required response times for pre-foreclosure sale offers submitted for consideration,

• Requires servicers to provide borrowers with status updates during the evaluation process, and

• Allows servicers to respond to unsolicited pre-foreclosure sale offers without first requiring an evaluation.

Here’s the long version and link to download the Mortgage Talking Points™ for real estate agents and clients: 

 Three types of short sales are covered, with different timelines for each:

1.    Evaluation of Borrower Response Package –

• 3 days – Notify client that their request has been received
• 5 days – Determine what documents are missing
• 30 days – Determine if they will allow short sale
• 60 days – Prepare documents for client to sign
• Client has 14 days to accept or reject the agreement
• Optional 10-day extension at client’s request

1. Short Sale without Short-Sale Agreement

• 10 days – Mortgage company must respond with approval or denial
•  5 days – Given to borrower to respond, if short sale offer is made
• 10 days – If borrower makes a counter offer, Mortgage Company must respond in 10 days.

1. Pre-foreclosure Sale Received with Borrower Response Package

• 3 days – Notify client that their request has been received
• 5 days – Determine what documents are missing
• 30 days – Respond with an approval, approval with conditions, deny, counter-offer; or still under review.
•  5 days – If the offer is “deny with counteroffer,” borrower to respond with decision of the counteroffer
• 10 days – When client responds, must communicate response with counter offer.
• 30 days – If response is “still under review,” and extension of 30 days is allowed, however, mortgage company must give weekly status reports to borrower
• 60 days – Of first request, servicers must respond with final decision.

Note:  These are “business days” and not “calendar days.”

This is a good thing for the housing market.  Right now there is a backlog of homes and borrowers that could benefit from a quicker path to a short sale as a foreclosure alternative, as well as myriad processes and paperwork – but no accountability or service that the servicer is obligated to follow on a consistent basis.

 Knowing the new short-sale timelines can help you get your deal closed faster and challenge the servicers if not met.

This new requirement from the agencies provides a single point of contact for the homeowner wishing to find alternatives to foreclosure.  It provides a clear path for all parties involved, and a defined timeline where one can finally see a light at the end of the tunnel.

Short sales, pre-foreclosure sales and foreclosures are already an emotional and frightening experience for most folks, and these new standards set by Fannie and Freddie for the servicers will now be required to meet deadlines for the steps required to qualify and be approved for a short sale.

I hate to be “Debbie Downer,” but one thing is missing from this new short-sale timeline rule—there are no penalties or repercussions if these timelines are not followed!  Hey, but if you know the timelines—and they know you know—it can only work in your favor.

Mortgage Talking Points(tm) can be found www.MortgageCurrentcy.com and click on the Mortgage Talking Points toolbar.