Fannie Mae Short Sale Announcement

A couple of days ago, Fannie Mae released to the press information about a new plan to become more involved and proactive in the short sale process for homes whose loan they hold. Below are the highlights of the release.

WASHINGTON, DC – Fannie Mae (FNMA/OTC) today announced the expansion of the HomePath® for Short Sales website, a communication tool created to help real estate professionals efficiently complete short sales and resolve challenges directly with Fannie Mae.  The new functionality will allow agents to contact Fannie Mae sooner in the short sale process and preempt potential challenges, decreasing the need to escalate concerns further down the road. The website is open to any real estate professional working on a short sale involving a Fannie Mae-owned loan.

Through the expanded HomePath Short Sale Portal, listing agents can work directly with Fannie Mae to:

Request list price guidance prior to listing a property

View the status of submitted cases

Negotiate and receive first lien approval on a short sale directly from Fannie Mae (This feature will be rolled out over the next few months through individual servicers.)

For more on the program go to http://www.homepathforshortsales.com/

It remains to be seen if Fannie Mae will adequately staff this program or whether it will become just another frustrating bureaucracy in the already frustrating short sale process. None of the major banks ever got it right and still struggle today to make their convoluted processes work. Perhaps Fannie Mae can make a positive difference.

The short sale process has been so frustrating because of the lack of transparency in the process and the long bureaucratic chain that one has to navigate through to get a decision. Short sales involving major banks can and do take 3-4 months to get through, sometime longer. The process is further exacerbated by the total lack of any real concern about the people involved, the condition of the property or the local market conditions within the system.

Homes going through the short sale process are just entries on a spread sheet, assets to be manipulated and disposed of; there are no people involved from that perspective. People who may not ever see the property are called upon (for a fee) to render decisions (called Broker Price Opinions) about its market value. Some banks make minimal effort to ensure that the property is secure and maintained to some level during the process.

So, one can only hope that there is sincerity behind Fannie Mae’s assertion that they are concern about keeping neighborhoods viable by doing what they can to make the short sale process quicker and with less damage to the property value of the home being sold and those around it. Let’s hope that they staff up adequately to handle the volume and have a straightforward process in place to get quick decisions.

If you don't know whether Fannie Mae hold the mortgage to your home, go here - https://knowyouroptions.com/loanlookup

First Time Buyers – I saw a sign that said Homepath Financing Available. What’s that all about?

First of all it means that you are looking at a foreclosed home that is now owned by Fannie Mae.  Fannie Mae is one of two Government Sponsored Entities (GSE’s) that buy up mortgage loans an package them into investment pools. The U.S. Senate has released the draft of a bill that would do away with Fannie Mae and Freddie Mac (the other GSE) and move the functions they have been performing to the new Federal  Mortgage Insurance Corporation. Both GSE’s are currently owned by the government as the result of having gone bankrupt during the great recession.

HomePath Financing, available only on Fannie Mae-owned properties, offers great benefits — a 5% down payment , no lender-requested appraisal and no mortgage insurance, expanded seller contributions, and more. There are HomePath Mortgages available for move-in ready properties for both owner occupants and investors. You also can use the financing of your choice from any lender, such as your local bank, credit union or other financial institution. The institution has to be a participant in the Fannie Mae program and accept the rules of the program.

Freddie Mac has a similar program called HomeSteps Financing that is only available in ten states. HomeSteps Financing is available in Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas and Virginia. For more on the Freddie Mac program, click here.

If a HomePath home is not move-in ready and needs work, maybe before it can even be occupied, the HomePath Renovation Mortgage provides both the funds to purchase and to renovate in one loan. HomePath Renovation Mortgage allows a buyer to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation — up to 35% of the as completed value, no more than $35,000. As with FHA 203(K) loans, there are requirements and rules and the projected end value must be supported by an appraisers opion.

While these programs are available for both owner-occupant buyers and investors, Fannie Mae does give the owner-occupant an advantage, since they are trying to encourage individual home ownership over investor ownership. Owner-occupant buyers are given a head start through a program called First Look, which means that for the first two weeks of the listing only buyers who are going to live in the home are allowed to bid on it (similar to the HUD program for owner-occupants).

This is a great program if you can find the right property. In addition to the lower mortgage rates that are offered, the savings from having no PMI can make a big difference. Currently Fannie Mae also has a program in place to assist with closing costs, up to 3.5% of the purchase price. That program will go away shortly, unless Fannie Mae extends it. . Click here to download a PDF file with all of the details of the HomePath program.

So, is this a great deal for you? Well, that depends. If you can find one of those move-in ready homes it could be; however most of the HomePath homes, at least in this area, are in fairly sad shape. They may have mold from broken pipes as the result of our hard winter, or they may have been stripped by the previous owners or by vandals. Most have multiple issues that will need to be addresses and most will need those repairs before you can even live in them.  That scares off a lot of mortgage companies, so your choices for a mortgage may be limited.

The other thing to consider is how you will get that work done and making sure that you have a good handle on the costs involved. A common mistake is underestimating the cost and the time and running out of both before the house is ready to occupy. Most Fannie Mae homes that qualify for the HomePath program need much more than a few weekends with a paintbrush; so don’t get in over your head just because it initially looks like a good deal. If you have the wherewithal, the tools and skills and the time to take on the projects that the home will require it is a good deal. Good luck with your HomePAth house.

Fannie and Freddie make changes...

From CNN Money.com comes this story - The good news: Mortgage giant Fannie Mae is taking steps to shore up its finances. The bad news: You're going to pay for it when you take out a mortgage.

Fannie plays a central role in the market for home mortgages by purchasing loans, securitizing them and selling them to investors. In announcing announcing a $2.3 billion loss on Friday, it also said it would make major changes that could have a significant effect on mortgage liquidity and pricing.

The company said it will increase its fees, stop buying certain high-risk loans and charge a higher risk premium for buying loans in the declining market.

"[These actions] have raised the costs of mortgage credit and reduced its availability," said Mark Zandi, chief economist for Moody's Economy.com. "Policy makers had been hoping they would move forward to provide more credit and now they're just hoping they don't pull back."

Fannie increased fees for some loans by a quarter of a percentage point, based on borrowers' credit scores and the amount of their down payments. It will charge, for example, 1% (up from 0.75%) for a buyer with a credit score of 680 paying 20% down.

And Fannie (FNM, Fortune 500) doubled its "adverse market delivery charge" to 0.5%. That is an across-the-board fee assessed against every loan Fannie buys, according to a Fannie spokeswoman. Fannie first instituted the charge this spring.

"It's very negative," said Lawrence Yun, chief economist for the National Association of Realtors. "Any time there's an additional imposition of fees in obtaining a mortgage, it knocks some potential buyers out of the market."

Fannie's smaller cousin, Freddie Mac (FRE, Fortune 500), which also announced a big loss this week, has been taking similar steps to shore up in finances and reduce its exposure to risky loans.

The additional fees imposed by Fannie will hit newcomers particularly hard, according to Yun. First-time buyers are usually most on the margins and struggling to afford a home purchase. The added fees will be passed on to borrowers and could mean quarter-point increases in interest rates.

Reducing the number of first-time buyers can have a domino effect on the market. Existing homeowners looking to trade up to bigger, more expensive homes may postpone doing so because they can't sell their present home.

Fannie will also eliminate buying Alt-A loans by the end of 2008. Alt-A loans, a category between prime and subprime, accounted for about 11% of the company's loans during the last years of the boom. They have been used mostly by people who couldn't or wouldn't document their incomes, their assets or both. These buyers will find it harder to obtain financing once Fannie stops buying the loans.

According to Yun, however, the cutback in Alt-A will hurt people buying second homes to rent out or resell, rather than first time homeowners.

"These are people who often rely on their good credit to buy investment properties putting little or no money down," he said.

But removing some of them from the market will decrease demand in a market already struggling with high inventory.

Fannie and Freddie, as private companies created and sponsored by the government, have to foster home ownership while satisfying their shareholders. They have to maintain profitability or risk triggering a government rescue.

"They were created to provide liquidity in times of crisis," said Yun. "If they don't do that, what's the point of having Fannie and Freddie in the first place?"

Indeed, many people wonder the same thing. Fannie and Freddie have always been a bit of mystery to the common people who don’t deal directly with either one. We’ve always known they were back there somewhere, doing something that wasn’t quite clear, but apparently was important, since they get a lot of press. So, now the things that they’re doing back there will have a negative impact on all homebuyers. Great! Maybe George W. can stand over their shoulders and say “You’re doin’ a great job Fannie Fred.”