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» VISIT US ONLINE @ DSNEWS.COM BEST PRACTICES Short and Simple S By Mike Wileman in short sales for underwater homeowners—and borrowers with negative housing equity are a sizeable group. showing 30.9 percent of U.S. homeowners with a mortgage—or 15.3 million borrowers—were underwater as of the second quarter of 2012. Negative equity remains a major factor working against the housing market's recovery, accord- ing to Zillow. Interestingly, younger homeown- ers account for a disproportionate share of the mortgages with negative equity. Zillow found that nearly half—46 percent—of all homeown- ers under the age of 45 are underwater on their mortgages, and more than half of homeowners aged 30 to 34 years are underwater. FHFA's recent changes to the GSEs' short In August, Zillow released a research study sale guidelines should help pave the way for more short sales to take place. Beginning next month, Fannie Mae and Freddie Mac will simplify the process for mortgage servicers to allow more short sales by letting borrowers qualify for a short sale even if they haven't faced a financial hardship. Borrowers who are more than 90 days late on their mortgage payments will qualify. The rules are also broadened with regard to homeowners who are current on their mortgage payments but face serious hardships. That's good news for homeowners with sales and speeding the process bodes well for the country's housing markets as shadow inventory is reduced. Easing the way for short sales on these properties is critical, and one way lenders can move the process along is to make sure all the documentation is in place and properly recorded. Ultimately, increasing the number of short Proper Documentation Ensuring documentation is in order can be a time-consuming and frustrating exercise, but it's a necessary one. Documentation deficien- cies, such as missing loan assignments, recorded mortgages, and open mortgages of record that have been paid, can delay or even prevent a short sale from moving forward. It all starts with the potential seller of a negative equity who previously may not have been eligible for a short sale. For lenders, it may be regarded as bittersweet. While the short sale ac- celerates a loss on the account, it should reduce the overall loss since a foreclosure is avoided and prop- erty upkeep and carrying costs are minimized. short sale property. Often it's a challenge for the lender to obtain the required paperwork from the seller. The seller may be uncoopera- tive about submitting the required documents. If the documentation isn't in order when the lender goes to review the sale, the lender may opt to halt the process and force the seller to start all over again. Not only can the short sale be delayed, but hort sales are certainly a hot topic this year and are even more talked about since the Federal Housing Finance Agency (FHFA) issued new short sale guidelines for loans owned by Fannie Mae and Freddie Mac. The changes to the GSEs' policies, set to take effect November 1, will likely fuel an increase documents, such as proof of clear title to the property, can make it very difficult to buy and sell mortgages. For example, something as basic as a title change becomes problematic if the lender or servicer didn't have a process in place to make sure the change was properly recorded to pro- vide proof of who owns the mortgage. During the heyday of the housing boom, important steps like this were often overlooked. Another big factor adding to paperwork problems is the great number of acquisitions that took place in the mortgage business prior to the housing market's collapse. When loans were purchased, the buyer and the seller frequently didn't coordinate filing and docu- mentation processes, which led to improper or missing documentation and assignments. Today when the holder of the mortgage is working toward completing a short sale or a foreclosure, not having that proof of ownership causes major headaches. Chain of Title It is critical that files are reviewed to missing or improper documentation can also prohibit lenders from selling off loans to a third party. Investors are becoming more vigilant with regard to documentation issues when they make loan purchases as they realize missing verify the chain of title is unbroken and to determine whether there are any outstand- ing liens on the property. A current owner search can accomplish this and will identify any open liens that could affect the lender or servicer's position, such as delinquent prop- erty taxes, code violations, and municipal liens. In addition, a current owner search will identify the assignment chain and ensure all assignments were properly filed and recorded with the county. Lenders and servicers should also verify the note endorsement, or allonge chain, is complete. A best-case scenario would be to 61

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