First of all, who is they? It is the entity writing Fannie Mae Guidelines. Out of nowhere, with no warning shots fired, this came about last Thursday. A sudden death policy decision for any state that has a redemption period on foreclosed properties; a period that is nearly impossible to "season" without damage to our industry. I know that in the State of Alabama, foreclosed properties have a Right of Redemption" period. Here, in Alabama, that period is one year from the date of foreclosure. Apparently, during that one year period, Fannie Mae has taken the position that a Redemption period is an unacceptable title defect, and that these mortgage loans are not eligible for delivery to Fannie Mae until that period has expired (seasoned.)
Read it for yourselves:
The updated topics are dated May 27, 2010
Title Defect – Mortgage Loans Secured by Properties Subject to Unexpired Redemption Period
Certain state laws provide for a “redemption period” after a foreclosure or tax sale has occurred, during which time the prior owner may reclaim the property upon payment of all amounts owed. Unexpired redemption periods create an unacceptable title defect on the subject property, and do not conform to the existing policy that requires the property to have “good and marketable” title. As such, Fannie Mae is clarifying the Selling Guide to state that properties with unexpired redemption periods have unacceptable title defects. Therefore, these mortgage loans are not eligible for delivery to Fannie Mae until after the expiration of the redemption period. The purchase of additional insurance, a redemption bond or similar coverage during the redemption period does not remedy the title defect and the mortgage loan remains ineligible for delivery to Fannie Mae.
This topic was also updated to remove the paragraph pertaining to FHA and VA mortgage loans. Lenders must follow the applicable federal agency’s requirements pertaining to allowable title exceptions.
The lenders that we have spoken to are all wondering who on earth will now finance foreclosed purchases. Most are under the assumption, until further clarification, that the FHA and VA loans will also conform to this new guideline. So who will underwrite these loans?
I know there are other states with redemption periods, some really short and at least one longer than ours. We are being further rent assunder by the very entity that should be jumping up and down celebrating our industry victories, small though they are, which by the way is an essential part of our economy. Instead, we are once again undermined by the Federal Government, and this hit will be seriously difficult to remedy. The possibilities are endless for the next wave of realty failure in redemption states.
So, I ask again: What will they do next to torpedo our industry? Nuke it?