Fannie Mae and Freddie Mac Short Sale | Brian Bean and Tim Hardin | Riverside Short Sales | Short Sale Negotiator

Fannie, Freddie compress short sale timelines

Under the gun to more quickly process short sales, mortgage giants Fannie Mae and Freddie Mac must now respond to short sale requests in 30-60 days.

This week, the government-sponsored enterprises instituted tighter timelines designed to quickly generate responses to short sale requests. And that’s critically important with the tax exemption for distressed homeowners set to expire at the end of the year.

The Federal Housing Finance Agency, which oversees the GSEs, directed Fannie and Freddie to create the new timelines to address the No. 1 problem reported with short sales – unmanaged timelines and lack of efficiency.

These new timelines, which began June 15, apply to traditional in-house short sale programs, as well as to the Home Affordable Foreclosure Alternatives program.

THE NEW GUIDELINES

• Servicers must acknowledge receipt within 3 days of receiving an offer or a complete “borrower response package” requesting short sale consideration.
• Within five days of receipt, the servicer must request missing or additional documentation from the homeowner.
• Servicers must issue a decision within 30 days of receiving the short sale request or an offer.
• If the servicer needs more time to evaluate the home’s value or to get approval from a mortgage insurer, it can request a 30-day extension, but it must give the homeowner weekly status updates.
• Within 60 days or receiving an offer or short sale request package, the servicer must render an approval, denial or counter-offer.
• Agents working with distressed homeowners have five days to respond to counter-offers.
• Servicers have 10 days to respond to counter-offers.

Fannie and Freddie own or guarantee about half of the U.S. mortgages. The GSEs have been known to be slow-moving and incommunicative during a short sale, in which a homeowner sells a property for less than is owed on it and the lender agrees to discount the payoff.

Previous guidelines "required servicers to evaluate and complete short sales, but did not require specific timelines," Fannie Mae spokesman Andrew Wilson said in a news release. “These new guidelines are meant to expedite the short sale process and make it more transparent.”

TAX BREAK EXPIRING

But the clock is ticking for millions of distressed homeowners.

The federal Mortgage Forgiveness Debt Relief Act of 2007 and California’s Conformity Act of 2010 are set to expire at the end of this year. Both laws exempt some homeowners from paying income taxes on debt cancellation on a primary residence.

Because short sales, loan mods and foreclosure actions can stretch out for months, homeowners who wait too long risk finishing too late. More importantly, as the expiration nears, homeowners are likely to flood the system, increasing inventory, straining bank negotiators and lengthening the approval process.

If either of the laws expires, those who miss the deadline face crippling tax bills. For a homeowner, it would be like salt in a wound – not only did they lose their home to foreclosure, but they now the IRS is calling?

When a home goes to foreclosure or short sale, the loss to the bank (or debt forgiveness) is considered income to the homeowner. The bank will report that income to the Internal Revenue Service on a 1099 form. And a taxpayer could owe $15,000 to $35,000 in taxes on a $100,000 loss to the bank.

The federal Debt Relief Act exempts some homeowners from that tax bill, as long as the loans were used to build, buy or improve a primary residence. The California law essentially mirrors the federal law, but applies to state income taxes.

Do you qualify for these tax exemptions? Call us today at 951-778-9700 to find out.

CHANGING MINDSETS

Why are Fannie and Freddie finally addressing short sales? It’s all about the money.

Banks prefer short sales because they net 12 percent to 25 percent more than from a foreclosure. It takes time and money to seize, repair, maintain, market and resell a property. And as many as half of loan modifications redefault within the first year, later turning into foreclosures and short sales.

For homeowners, a short sale fends off a financially devastating foreclosure, limits damage to credit, and puts them back in the housing market much more quickly as an able buyer – before home values again shoot through the roof.

More importantly, a short sale allows a homeowner to exit their house on their own terms, with dignity intact.

Want to know if your loan is owned or guaranteed by Fannie Mae or Freddie Mac. Call us today at 951-778-9700, and we’ll do the research for you.

Fannie Mae and Freddie Mac Short Sale | Brian Bean and Tim Hardin | Riverside Short Sales | Short Sale Negotiator

Fannie Mae and Freddie Mac Short Sale | Brian Bean and Tim Hardin | Riverside Short Sales | Short Sale Negotiator