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April 20, 2014

Fannie Targeted for Pitfalls in Short Sales

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Fannie Targeted for Pitfalls in Short Sales

The Office of Inspector General is recommending more oversight of Fannie Mae’s short-sale approvals after discovering flaws in the mortgage giant's process.

OIG says in a report that after a review of 41 Fannie Mae short-sale transactions, it found that five servicers were failing to collect all of the required documents before determining if an applicant was eligible for a short sale. In turn, the servicers were also failing to provide the required documentation to Fannie Mae.

During 2012, Fannie Mae and its lenders approved more than 73,000 short sales, and the servicers identified in the OIG report were responsible for 34 percent of them, the report says. 

OIG also says the servicers did not always conduct adequate reviews of the documents that were supplied by borrowers and failed to identify what necessary documents were missing — but still approved the short sales. 

The Federal Housing Finance Agency, which oversees Fannie, agreed with OIG's recommendations of stricter oversight from its audit of the mortgage giant’s short-sales processes.

OIG raised questions over Fannie Mae’s Low FICO Program, which allows servicers to approve short sales without collecting or reviewing any information or documentation for borrowers that have a FICO score below 620 and are at least 90 days late on their mortgage. OIG urged FHFA to review Fannie’s program and determine whether it should apply to borrowers who have non-owner occupants in their properties.

Source: “OIG Recommends Tighter Oversight of Fannie Mae Short Sales,” Mortgage News Daily (Nov. 19, 2013)

Read more:

Report: FHFA Oversight of Fannie, Freddie Falls Short
Watchdog: Strengthen Oversight of Fannie, Freddie Executive Pay