Starting in June, mortgage servicers will be subject to new Freddie Mac and Fannie Mae requirements aimed at expediting the process for the review and approval of short sales.
Loan servicers will be required to assess and respond to short sale offers within 30 days after all relevant documentation is received. Information on the newly released regulations indicates that mortgage servicers will have the freedom to take upwards of 60 days to make a determination in cases where negotiations with relevant parties to a proposed transaction take longer than expected.
In recent years, short sales have generally taken multiple months to close, since such deals require consensus among multiple stakeholders, including buyers, sellers, investors and lien holders. Loan servicers operating in conjunction with Fannie Mae and Freddie Mac concluded 32,000 short sale transactions in the fourth quarter of last year. This represents a record number of such sales and an increase of 14 percent from the preceding quarter.
According to the new framework set to go into effect on June 15, mortgage servicers will have three business days before they must confirm receipt of documents, and five days to communicate whether additional documentation will be required. Any short sale transactions for which a decision takes longer than 30 days will trigger a responsibility on the part of the loan servicer to give the borrower status updates on a weekly basis.
The requirement that Freddie Mac and Fannie Mae adjust and synchronize their short sale frameworks was issued by the Federal Housing Finance Agency (FHFA).
Edward DeMarco, Acting Director of the FHFA indicated that his agency is dedicated to improving the processes governing short sales and deed-in-lieu transactions in order to reduce foreclosure rates, improve home occupancy numbers and promote community stability across the country. He further asserted that the new compulsory timelines and communication standards will offer transparency and predictability for stakeholders interested in taking advantage of key alternatives to foreclosure.
