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Fannie And Freddie's New Short Sale Evaluations Are Way Off Base.

By Bryant Tutas

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

November 16, 2012 08:47 PM

There has been a lot of talk lately in the short sale world about Fannie Mae and Freddie Mac countering short Sale contract prices at outrageously high prices.

As a Short Sale Specialist in Orlando, Florida I too am seeing really high counters from the 2 largest investors. An example is a property I had valued at $85,000. I listed it at $105,000 to try and get as much as we could for the property because I know that the higher the price the easier the short sale.

We negotiated an offer of $100,000 cash.
The BPO came in at $110,000.
The counter from Fannie Mae was $135,000!!

Why is this happening?

My opinion, based on conversations with several bank negotiators, is that Fannie and Freddie are now delegating more Short Sale Approvals to the servicers as part of the new FHFA Standard Short Sale Guidelines For Fannie Mae and Freddie Mac that were rolled out 1 November. BUT the deal has to come in within a certain parameter of loss to the investor. For example: "You can approve the short sales as long as our loss is not more than 50%"

So the ridiculous values are being based on a percentage of loss NOT the value of the property.

You may have seen a counter from the servicer like this:

Body: Please review counter. I HAVE COUNTERED TO THE LOWEST CONTRACT PRICE I CAN ACCEPT FROM THE BUYER IN ORDER TO APPROVE THIS SHORT SALE. Any contract price that is lower is subject to be reviewed by the investor, and/or immediate denial. Any decision by the investor will be considered final. A contribution from the seller has been requested, for -$12100. This amount is 10% (or promissory note for double the amount), of the investor’s expected loss based on this short sale offer. This amount can be accepted, or countered by the seller, based on their participation capability. However, a contribution may be required for short sale approval. With an appropriate contribution, the investor will waive the deficiency balance following closing of the short sale.

*******************

It's pretty evident to me that this counter is based on an internal investor guideline and not the value of the property. So...the way to handle it is to:

Get some kind of a cash contribution from the seller even if it's $500.
Get the buyer up some on price even if it's $1,000. Just make sure the contract truly is market value.
Reduce some expenses to increase the NET to the Investor.
Attach a value dispute to the counter offer.

If the file is escalated and the value dispute is denied then you should place the property back on the market at the higher price and look for another buyer. Reduce as necessary to find a buyer within 60-90 days. Then resubmit. You may get a completely different answer the next time around.

Don't let these counters throw you for a loop. Just keep pushing.

What say you?

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Michael Setunsky

Woodbridge, VA

Your Commercial Real Estate Link to Northern VA

BB, this tactic is going to lose a lot of potential buyers and sellers who may not want to go through all the hassle. Not to mention agents who will think this is a total waste of time.

Nov 16, 2012 09:28 PM

Michele Connors

The Overton Group, LLC Pitt & Carteret County - Greenville, NC

Your Eastern North Carolina Realtor

In the meantime, seller still not making mortgage payments and all the extra 3 month efforts bring you back to square one ... unless that original buyer has moved on to another property !! Im kinda thinkin they counter high to try to reinflate the market which the carry a hefty share of ! Not the right way to do it, but they think their formula is working..again !

Nov 16, 2012 09:57 PM

Gary Frimann, CRS, GRI, SRES

Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA

REALTOR and Broker

I have not seen this happening yet in my area. I have seen some pretty low sales but mostly the short sales seem to be going for market value. I'll have to look out for this.

Nov 16, 2012 10:41 PM

Richie Alan Naggar

people first...then business Ran Right Realty - Riverside, CA

agent & author

This post hit me hard and to the point...Call Bryant and then fasten your Real Estate seat belt. The ride is going to get bumpy but productive and those that are not up to it need not apply. Those that stay the course, will be further instructed by Bryant

Nov 16, 2012 10:51 PM

Joe Petrowsky

Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT

Your Mortgage Consultant for Life

There is no common sense with the folks that are make decisions on these short sales.

Last year I made an offer on a short sale. Seller agreed to my price. Bank of America, the servicer came back with a price, $20,000 above the listing price. Two months ago I purchase the property for less than I originally offered.

Nov 16, 2012 11:00 PM

Janis Borgueta

Newburgh, NY

Retired RE Salesperson

Bryant.. while this may work in your area.. it will not happen with the older and falling down vacant homes I am seeing in my area. The longer that they stay on the market the less value that they have. New York has some really high closing costs and nobody has the extra cash if they are doing this deal to begin with. Sellers just walk and buyers won't pay over priced numbers .. yet.. Real Estate is local. and you are lucky to know just how to work the system and have the market that is super hot to do so.. I think why we have it so bad is that in other parts of the market it is doable.. and banks try to implement that here too. Not happening yet ... not with our market.

Nov 16, 2012 11:00 PM

Than Maynard

Coldwell Banker Heart of Oklahoma - Purcell, OK

Broker - Licensed to List & Sell - 405-990-8862

You mean the property must actually appraise? The mortgage companies won't loan more than it is worth?

Isn't that what people are accusing the mortgage companies of doing before the bust and now the feds (quasi-federal my backside) are trying to get them to do it again?

Nov 16, 2012 11:01 PM

Elizabeth Weintraub Sacramento Broker

Elizabeth Anne Weintraub, Broker - Sacramento, CA

Put 40 years of experience to work for you

You're darn tootin' anybody can do the "easy" deals, Bryant, you make me laugh because I totally understand.

Part of this problem I suspect is Fannie and Freddie may object to the new regulations imposed by FHFA. And FHFA is under pressure as well. I hear DeMarco is leaving. So, maybe Fannie and Freddie have found a way they don't have to do the short sale -- by increasing the gross sales price? That way they don't have to publicly refuse. They can hold to the fact the buyer did not meet minimum requirements and still hang on to their jobs.

I do what you do. I go looking for a fool. Sometimes, I find one. Sometimes, I put it back into escrow at the agreed upon price, wait for the buyer's appraisal to come in low and then submit for a revised letter. Whatever, I don't give up.

Nov 17, 2012 12:01 AM

Keith Lawrence

Christie's International - Mahwah, NJ

ABR, SFR

Interesting post. I just got a response on a short sale yesterday that seems like it was and investor guideline number. I did tell the buyer just through them a couple thousand more has you described.

Let see what happens.

Nov 17, 2012 02:39 AM

Pamela Seley

West Coast Realty Division - Murrieta, CA

Residential Real Estate Agent serving SW RivCo CA

This is ridiculous. I agree with Than comment #11. Wasn't it inflated appraisals that had an impact in causing the housing bubble to begin with? The feds want another housing bubble. The buyers I work with (cash and loan) are in no way going to pay above market value. That means the seller must come in with a contribution. How many short sellers can come in with $20K? None that I've worked with. Fannie Mae bank-owned homes have always been overpriced for several years now. As far as my business is concerned, I won't be staying the short sale course. For me, it's the principle of it. I won't participate in another housing bubble. If there's a housing shortage, builders need to start building new homes again. That will not only create jobs for our crappy economy but create homes for first-time home buyers to buy. The feds have it a^^backwards, as usual.

Nov 17, 2012 03:25 AM

Ute Ferdig

Ferdig Real Estate Solutions - Auburn, CA

Because Getting It Right Matters!

I have had a Fannie Mae short sale for a year now. It's been approved 3 times (2 buyers walked). Every time, Fannie Mae countered back with$5,000 higher. The 2nd time, we got it approved for $145,000 and when the buyer discovered repair items during inspections, we got the short sale approved for a $15,000 lower price. Buyer # 2 still walked (go figure). Buyer # 3 made an offer for the most recently approved price of $130,000 and the Fannie Mae negotiator countered saying Fannie Mae would have to net a certain $ amount which resulted in a $4,500 higher purchase price. 4 weeks later, the new price of $134,500 was approved (the approval was stuck in their QC department for 10 days). Then the appraisal came in at $125,000 and we have to go back to ask for approval at $125,000 and negotiator is telling me that this short sale is becoming very difficult to close. Let's face it, I am not the one who keeps asking for more money and Fannie Mae's loss on this short sale is relatively low (UPB is $120,000 and they'll net $104,000). Most recent BPO was done when we had it approved for $130,000. We are not that far apart and yet everything takes a long time with Fannie Mae. I can only hope that giving servicers more decision making powers will make things faster for those that still need Fannie Mae approval.

Nov 17, 2012 06:37 AM

Ed Silva, 203-206-0754

Mapleridge Realty, CT 203-206-0754 - Waterbury, CT

Central CT Real Estate Broker Serving all equally

I just lost a short sale that forced the seller to accept a deed in lieu. When Fannie puts it back on the market they will be hard pressed to get the value that was offered in the contract

Nov 17, 2012 07:11 AM

Michael Blue

Home Smart Realty West - Encinitas, CA

REALTOR - 760-889-8877, Encinitas/Carlsbad

It is happening in all parts of the country, they will counter 20% over BPO. I still submit photos in the MLS showing yard work, items in need of repair, stained carpet etc to keep the BPO agents driving from 20 miles away to keep it real. Then the 20% isn't sky high.

Nov 17, 2012 12:38 PM

Les & Sarah Oswald

Realty One Group - Eastvale, CA

Broker, Realtor and Investor

Thanks for the information as to what is happening with short sales and what Fannie and Freddie are doing... I am doing a BPO right now and need to assign an up to date value on a property. With this going on it makes my job all the more interesting to see what the house will actually sell for in the end.

Nov 17, 2012 03:03 PM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Great comments guys.

FNMA is acting like an indecisive seller.

I truly believe that very few short sales would close if it weren't for agents. But it's so difficult at times due to being kept in the dark by the final decsion maker.

Nov 17, 2012 08:13 PM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

BB, thanks for the update & what to expect. Great post.

Nov 17, 2012 11:02 PM

Ben Gerritsen

Mortgage Miracles Happen, NMLS ID: 1289680 - Ogden, UT

Mortgage Loan Originator

Bryant,

Interesting that this is taking place by Fannie. It's good for everyone to watch out for across the country.

Nov 18, 2012 12:05 PM

Satar Naghshineh

Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I don't think it is a loss to investor based on a precentage of the original loan. I believe the servicer is able to approve a certain percentage of loss based on valuations on the property. Anything more needs Fannie and Freddie approval.

It's funny sometimes. I remember when seconds were playing that game in the early years until the investors dried up who were purchasing their notes. I don't think Fannie and Freddie are in that position.

Somewhere in your short sale, your logic and numbers are off.

Nov 20, 2012 06:13 AM

Wendy Rulnick

Rulnick Realty, Inc. - Destin, FL

"It's Wendy... It's Sold!"

Bryant - It may be time to email your representatives in Congress about this so-called improvement to FHFA Fannie Mae and Freddie Mac short sales. You've done good research and exposed it. Thank you.

Nov 20, 2012 07:32 AM

Sharon Parisi

United Real Estate Dallas - Dallas, TX

Dallas Homes

Bryant, all I can say is, "What are these people thinking?' Why would anyone want to pay more than what the property is worth?

Dec 08, 2012 01:20 PM

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