Serious Questions Raised about the Validity of Foreclosures

In September and October 2010, several lenders suspended foreclosures in two dozen states due to questions about whether foreclosures were being processed consistent with applicable state law requirements. Concerns are being raised by state and federal elected officials, as well as consumer and fair housing groups, about the validity of ownership of mortgages that have been securitized and resold. At the center of the controversy is Mortgage Electronic Registration Systems (MERS). This firm is responsible for electronically tracking the transfer of assignment of mortgages. Class-action suits are being brought against MERS alleging that the use of the system circumvents state laws.

On October 1, 2010, Fannie Mae and Freddie Mac released statements regarding servicer compliance with foreclosure processing of Fannie and Freddie loans. In the releases, both organizations reiterated that servicers must comply with applicable state laws governing foreclosures. Although nearly all of the foreclosures in question are expected to be fixed eventually, the current situation is creating difficulties and a new hurdle to the recovery of the housing and mortgage markets. NAR members are reporting that upcoming sales have been delayed indefinitely or cancelled, to the detriment of all involved. Additionally, homes on the market without clear title will make sales much more difficult. While banking executives focus their attention on this problem, it is possible that servicers may be somewhat more receptive to approving loan modifications and short sales, since they avoid the foreclosure procedural problems altogether.

Fannie Mae Statement
Freddie Mac Press Release

Submitted by Sasan Aval, Canaday Group Agent
Sasan@CanadayGroup.com

Future Loans with a Successful Short Sale vs. Foreclosure

Homeowner consequences of a successful short sale vs. foreclosure and how it relates to your future loans.

Future Fannie Mae Loan - Primary Residence
Foreclosure-A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.
Successful Short Sale-A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.

Future Fannie Mae Loan - Non Primary
Foreclosure-An Investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.
Successful Short Sale-An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

Future Loan with any Mortgage Company
Foreclosure-On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" this will affect future rates.
Successful Short Sale-There is no similar declaration or question regarding a short sale.