Some distressed borrowers who were improperly required to make contributions in short sale transactions on properties located in California or in short sales processed through the Home Affordable Foreclosure Alternatives program will be getting their money back.
In certain situations, Fannie Mae requires a borrower to make a contribution when a short sale transaction takes place.
Whether or not a contribution is required by the secondary lender depends on the borrower’s financial condition.
Fannie spelled out streamlined short sale requirements in Servicing Guide Announcement SVC-2012-19 issued on Aug. 22, 2012.
But a California law that went into effect in 2011 prohibited a deficiency judgment for any note where the property sold for less than is owed.
While Fannie said that the law’s language was unclear and did not expressly prohibit borrower contributions in short sale transactions, the state of California amended Section 580e of the law in July 2011 on an emergency basis and clarified that borrower contributions were prohibited in short sale transactions.
In addition, Fannie and its servicers were prohibited from collecting contributions for short sales in all states completed through Fannie’s HAFA program.
But an audit by the Federal Housing Finance Agency’s Office of Inspector General found that borrower contributions might have been improperly collected on California and HAFA short sales.
Fannie initiated a remediation plan that involved the return of $3.2 million to 1,222 California borrowers and less than $0.1 million for 18 HAFA short sales.
But the OIG found that servicers involved in the transactions are not being consistent about determining which borrowers are entitled to refunds.
The OIG is recommending that FHFA review Fannie’s remediation plan and oversee execution of the plan to ensure servicers are consistent.
It also is calling for FHFA to examine Freddie Mac’s controls for similar problems.
