Several speakers representing lenders, servicers, and appraisers spoke to Realtors attending their Midyear Legislative Meetings in Washington on Wednesday about some of the issues that have arisen around short sales and property valuation.
Tim McCallum, Fannie Mae's director of short sales, gave a short course on the improvements his company has made to facilitate short sales which continue to represent a significant portion of the real estate market - accounting for about 9 percent of sales during the first quarter of the year. McCallum said the short sale process can be frustrating for buyer, seller, and Realtor because the approvals are often complex, inconsistent, slow, and cumbersome. But, he said, Fannie Mae is improving transparency and has created a dedicated team to negotiate short sales with real estate agents.
Other steps to streamline the process include ordering a valuation as soon as the owner indicates he wants a short sale rather than when an offer is received. If the servicer doesn't respond to an offer within 30 days, the case can be escalated and Fannie Mae expects every short sale offer to be countered.
A foreclosure can be postponed if a short sales offer is received in a reasonable amount of time, preferably at least two weeks from a scheduled foreclosure, McCallum said, and the company has created a web-based channel to help agents escalate short sale issues and track their resolution.
Bob Martin, vice president of valuations at Fannie Mae, said they also have a dedicated team to value all foreclosed and short sale properties. The team includes 2,000 appraisers around the U.S. who can produce valuations in their local areas within three weeks. Fannie Mae also uses Broker Price Opinions and data from other sources including current listings, pending sales, and sold properties, Martin said.
Under a new policy announced by Fannie Mae late last year to guide short sales, after a borrower contacts their mortgage servicer to determine eligibility, the buyer and their agent receive a recommended list price and have the opportunity to respond to the valuation. When an agent submits an offer Fannie Mae may review, and if approved it will proceed to closing.
Borrower eligibility requirements vary, but if a borrower is 90-days or more delinquent, and has a FICO credit score under 620, then no documents, hardship or contribution are required to qualify for streamlined documentation. Other borrowers must have an eligible hardship, such as unemployment, reduced income, divorce, death or disability. Even a borrower who is not delinquent may qualify for a short sale if at risk of imminent default and should speak with the servicer. In some cases relocation assistance is available to the seller.
Mark R. Johnson, senior vice president at Lender Processing Services Inc., said loan failures in the past five years continue to have reverberations. "Under the Dodd-Frank Act there can be no undue influence on appraisers, they need to be paid customary and reasonable fees, and each state must implement legislation for Appraisal Management Companies, which includes a reasonable separation between appraisers and clients." To date, 37 states have passed AMC legislation, and the remaining states have until 2015 to implement.
Although clients and real estate agents technically may communicate with appraisers, many lenders have their own rules. "It's a good idea to provide the appraiser with documentation about comparable sales, facts about the home and local market conditions prior to their examining a property," Johnson said.
Martin Wagar, chief operating officer at Midwest Appraisal Management Group, said it's important to match appraisers with the location of the property being evaluated. "AMCs need to improve the appraisal process and not get in the way of the transaction," he said. "Appraisers must have local competency to produce good appraisals." The Consumer Financial Protection Bureau will ultimately regulate AMCs, he said, but hasn't yet released any guidelines.
