GSE Short Sale Valuation Problems

Beginning in the latter part of 2012, a number of REALTORS® across the country reported that Fannie Mae had started jeopardizing short sale transactions by requesting purchase offers at significantly higher prices than market values. REALTORS® continue to report that Fannie Mae’s actions have led to a decrease in the number of Fannie Mae short sale transactions, an increase in the number of borrowers going through foreclosure producing further negative effects on surrounding property values. As a first step to address these concerns, Fannie Mae expanded its online HomePath for Short Sales tool to help speed up its escalation process in order to review problematic transactions more efficiently.

Improving the Short Sale Experience: Fannie Mae Presentation

Fannie Mae

  • On Nov. 5, 2012, NAR met with Fannie Mae executives to discuss valuation issues related to short sale transactions. Fannie Mae’s short sale team indicated that they made changes to some of their short sale policies in an attempt to copy efficiencies they’ve achieved through their REO broker network.  These changes were intended to implement similar measures for short sale transactions.  Fannie Mae stated they intended to minimize bank involvement and have more direct communication with listing agents in short sale transactions to speed up decisions and processing of short sales.
  • NAR requested that Fannie Mae provide an improved process for real estate agents to request list price reduction when the agent feels the value is out of line with the local market. Additionally, NAR expressed the need for more visibility and transparency into Fannie’s valuation and escalation processes.
  • As a result of these efforts, Fannie Mae contacted NAR on Dec. 19, 2012, acknowledging the persistence of the issue and efforts to improve communication on the process.  NAR contributed input on the development of Fannie Mae’s HomePath short sale site that includes an escalations contact form to resolve some of these issues.
  • In February 2013, Fannie Mae announced expansion of its case escalation process that will allow agents to directly contact Fannie Mae to dispute valuations and request assistance to resolve delays by servicers or uncooperative subordinate lien holders.  Additionally, agents can also request recommended list price from Fannie Mae prior to listing the property for sale.
  • Fannie Mae’s new process should assist in creating a more efficient short sale transaction, but NAR will continue to work with Fannie Mae to determine to what extent persistent problems have been addressed.

Federal Housing Finance Agency

  • On Jan. 8, 2013, NAR staff met at the Federal Housing Finance Agency (FHFA, Fannie Mae and Freddie Mac’s regulator) to discuss persistent problems with Fannie Mae short sale transactions.  During this meeting, FHFA and NAR held a conference call with REALTORS® from across the country regarding Fannie Mae’s short sale valuation process.  A summary of the call is as follows:
    • Since August, there has been a dramatic increase in values for short sales with Fannie Mae. This seems to be the rule rather than the exception. In the last 90 days, short sale approval rates have ranged from 20-50 percent.
    • When short sale valuations are disputed through the escalation process, some Realtors® felt cases were not being thoroughly reviewed by staff.
    • Fannie Mae appears to be asking for more than the fair market value regardless of the valuation method used—AVM, BPO or appraisal.  Fannie Mae’s escalation staff is in Dallas with in-house appraisers on staff who are assigned to particular regions of the country. 
    • Complaints about Freddie Mac have not been as numerous, though some markets (e.g., Nevada) have experienced short sale pricing challenges with Freddie Mac as well.
  • At the conclusion of the meeting, FHFA GSE examination staff requested that NAR provide specific short sale cases sent by REALTORS® for review and agreed to meet in the coming weeks to identify patterns.
  • In a follow up meeting in February 2013, FHFA stated that they had found a few cases that required further review, but found that, in most cases, Fannie had followed established guidelines. Additionally, FHFA staff noted that they had not found any spike in the number of “Deed-in-Lieu” transactions since August 2012. FHFA encouraged the use of Fannie Mae’s escalation portal since it will allow for increased supervision of the process.

Next Steps

NAR remains concerned that Fannie Mae’s recent short sale policy changes could significantly increase the number of borrowers ending up in foreclosure and hamper the success of FHFA policy changes to Fannie and Freddie’s Standard Short Sale processes. NAR will continue to work with our state and local associations, the GSEs, and FHFA until fewer borrowers end up in foreclosure when a short sale could have been completed, benefiting all parties to the transaction.

What can REALTORS® do?

NAR encourages REALTORS® to submit problematic transactions on for escalation review to An important part of identifying widespread problems is evaluating a large number of escalated cases.  With this additional information, Fannie Mae, FHFA, and NAR will be able to observe continuing issues and work to establish improved processes.