There are many changes occurring in the mortgage industry and many of these changes are affecting short sales. Some of these changes are certainly cause for concern, especially those with Nationstar Mortgage and their relationship to Fannie Mae and Freddie Mac.
Nationstar recently acquired billions of dollars worth of mortgage servicing rights and other assets from Bank of America as part of a major settlement agreement between Fannie Mae and Bank of America. Bank of America agreed to sell servicing rights on two million home loans with an unpaid principal balance of $306 billion. Nationstar confirmed it bought $215 billion in unpaid principal balance from Bank of America’s mortgage service release pool for $1.3 billion. Of the loans purchased, nearly 47% of the portfolio is loans insured by Fannie Mae, Freddie Mac and Ginnie Mae. The remaining 53% are tied to private investors. This transaction confirms Nationstar as a mega player in the special servicing arena. This new deal added 1.3 million customers to Nationstar’s existing customer base of 1.2 million.
Nationstar is a servicing company, not a bank, and therefore, is not under the control of the Office of the Comptroller of Currency or the Federal Reserve Bank. This leaves many homeowners vulnerable, as there is less government oversight, which leaves Nationstar to make up their own rules.
Nationstar has made several changes in their short sale requirements. Firstly, they require the buyer of their short sales to be pre-qualified by Nationstar. Additionally, to coerce buyers into financing with them, they offer the buyer 3% in closing costs. If, however, the buyer chooses not to get their financing with Nationstar, seller concessions are not allowed.
Another recent change in Nationstar’s short sale process includes requiring the listing agent to submit a full BPO and complete title search as part of the short sale initiation process. Ordering complete title work is money out of the listing agent’s pocket, which can be costly over time, especially if the short sales do not close.
Another new requirement is that Nationstar is requiring some of their short sale sellers to put their house on auctions.com for two weeks before they will consider a short sale on the property. If the seller does not comply, their only other option is foreclosure. This is being required whether there is a legally binding purchase contract on the property or not. If an offer is made on auctions.com that is higher than the current purchase offer, the higher offer supersedes.
Of even bigger concern is the number of Fannie Mae and Freddie Mac loans Nationstar is now servicing and the news that Fannie and Freddie are manipulating the real estate market. What affects will this have on their relationship with Nationstar Mortgage and the real estate market? The short sale market?
Recent news reveals that Fannie Mae and Freddie Mac are selling properties in bulk to large investors at big discounts. At the same time, their new guidelines prohibit a buyer of a short sale property from selling the property before 30 days from the date of the deed and further prohibiting the buyer from selling the property for a sales price greater than 120% until after 90 days from the date of the deed.
Recent news also has them inflating the retail values of properties and working directly with lenders who will loan money on the homes with inflated values. These properties are offered for sale with no appraisal requirement through Homepath and Homesteps. While this appears to be an arrangement with their preferred lenders, will property values with Nationstar short sales also be inflated?
There is serious alleged manipulation going on in the real estate industry right now causing big concern. Banks are dumping their delinquent mortgages for pennies on the dollar and withholding REO inventory to control housing prices and retain higher asset values. Fannie and Freddie are selling off bulk properties to the big investors, while controlling the fix and flip activities of the smaller investors. Nationstar is only one of the three up and coming big players in the service release business. We are sure that more news is around the corner now that GMAC sold their servicing operations to Ocwen and Green Tree.