A recent audit of multiple Fannie Mae servicers conducted by the Office of the Inspector General (OIG) for the Federal Housing Finance Agency (FHFA) reveals that in some cases, servicers are failing to properly document borrower eligibility for short sales.
‘Based on a review of 41 short sale transactions involving multiple Fannie Mae servicers, OIG found that five servicers, which accounted for 34% of Fannie Mae's short sales during 2012, were not always collecting all of the required documentation before making borrower eligibility determinations,’ the OIG says in press release issued Wednesday.
In addition, servicers did not always conduct adequate reviews supporting borrower eligibility, the OIG's audit uncovered.
‘For example, servicers identified but did not pursue missing documentation and, therefore, could not perform a complete borrower eligibility review,’ the OIG says. ‘In other cases, discrepancies between financial information reported on the borrower's Uniform Borrower Assistance Form (UBAF) and supporting documentation identified in the course of servicer reviews were left unresolved. Regardless of these circumstances, the short sales were approved.’
What's more, the government-sponsored enterprise and its servicers sometimes failed to ensure that borrower eligibility information archived within the Distressed Assets Reporting and Tracking System was accurate.
‘This system is intended to provide Fannie Mae key information to make borrower eligibility decisions or evaluate decisions made by its servicer,’ the OIG says in its release.
The OIG's audit also revealed that certain borrowers ‘with potentially significant financial resources sold multiple non-owner occupied properties through Fannie Mae's Low FICO Program (now called the Streamlined Documentation Program),’ which allows servicers to approve short sales without collecting or reviewing any further eligibility information, providing the borrower has a FICO score of less than 620 and is at least 90 days delinquent on the subject loan.
‘This policy should be reviewed by FHFA to determine whether it should apply to borrowers with mortgage loans secured by non-owner occupied properties, who may not experience the requisite financial hardship that would justify a short sale,’ the OIG says.
In response, the FHFA has agreed to implement measures to ensure each borrower's short-sale eligibility, including ‘enforcing the requirement that all borrowers not eligible for the Streamlined Documentation Program provide a borrower-certified UBAF and supporting documentation in order to make eligibility determinations and assess borrower contributions.’
In addition, the FHFA has agreed to ‘establish controls to identify and resolve inconsistencies between the UBAF and supporting information used in making short sale eligibility determinations,’ as well as to ‘assess its servicer compensation structure to determine if it should consider the quality of borrower eligibility determinations for short sales and success in limiting losses, including through contributions by borrowers with the ability to pay.’
The FHFA will also ‘enhance controls over collection and use of electronic information from servicers on the financial condition of borrowers to ensure data is reliable and effectively used in both borrower eligibility and servicer performance evaluation processes.’
The FHFA will also review the Streamlined Documentation Program to determine whether it should be available to borrowers seeking approval to short sell non-owner occupied properties.
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