Fannie HAFA: Foreclosure Alternative or Foreclosure Inducement?

Colleagues,

I read through the Fannie/Freddie HAFA programs released yesterday afternoon.

Overall, on first (and quick) read, the program reads like it was designed by analysts without a deep understanding of the issues and realities of the short sale process.

A program designed in the clouds for implementation here on planet Earth.

It may have the effect of reducing the return for transacting a short sale property, and therefore increasing the number of properties going to foreclosure.

For example, the program states:

real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;

But, Freddie caps settlement charges at 9%, including commission, conveyance/property tax, attorney, recordation, HOA. So, the commitment to "not lower commissions below 6%" is a bit of a sham, I think. "The Servicer did not require you to reduce the commission, we just aren't going to pay the bill."

(Not sure if this applied to Fannie, I hope not. Fannie does seem to hold their cards close to the chest.)

Minimum Allowable Net Proceed is not shared with seller, buyer, or agents. It's just a secret between Fannie and the Servicer. This provides no assistance to sellers. (Why can't Fannie learn from HUD?)

Handling of Second Liens seems to be disconnected from reality. Consideration is capped at 6% up to $6,000. (I think Fannie currently allows 8% up to $8,500.) Also, no additional payments are permitted, and the 2nd must waive future rights to the deficiency. An unfunded mandate, moreover Fannie has no way to require the 2nd to agree to this, I think. (Maybe the big players will agree to this for each other?)

Deficiency Waiver is included, but this program requires HAMP eligibility and liquid assets under $5,000 (or 3xPayment). So, pretty much the Creditor could not collect the debt anyway, and if necessary the debt could be extinguished in bankruptcy.

So, overall, my first read is BAD PROGRAM. What are they thinking?

Curious to hear what others think. (Maybe I was just tired and grumpy last night.....)

michael

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Comment by Michael Schneider on June 12, 2010 at 9:14am
Pamela,

The circumstance you are describing is predictable, based on the guidelines. This allows the Investor to state that they will not reduce below 6%, while creating the circumstances in which this is the likely outcome in some cases. Hence, their aggregate commissions drop from 5.8% to 5.4%, or whatever the actual number are, without changing policy.

Do you know who the Investor was on your deal, Pamela? Just curious.

I do hope that Fannie is not following the 9% aggregate cap. Does anyone know?

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