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Lending

Did Fannie Mae run afoul of California's short sale laws?

1,222 cases of borrower compensation under review

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Fannie Mae and its servicers maybe broke the law in California when collecting contributions from borrowers on short sales, the office of the inspector general for the Federal Housing Finance Agency claims in a new report. The government-sponsored entity, while not admitting culpability, said a data error may be to blame.

The detailed report, which is available here, prompted the FHFA to issue a response, saying while it "recognizes the GSEs’ obligations" to protect borrower interests, it is "unclear whether or not actions occurred that run contrary to California law as noted by the FHFA-OIG."

Back in July 2011, California issued a law prohibiting note holders from requiring a borrower to pay added compensation when the homeowner provides a written consent to a short sale.

Despite the rule going live, the FHFA-OIG claims Fannie servicers collected borrower contributions on 124 short sales completed in 2012, possibly violating California law.

After requesting Fannie short-sale data going back to 2011, the OIG acknowledged that 1,222 borrower contributions were collected, potentially violating California rules.

Still, FHFA-OIG took the time to recognize Fannie’s specific feedback on the issue.  

The GSE said it was experiencing data accuracy issues and eventually discovered some of the data reported by servicers "erroneously" showed collections from borrowers.

OIG also claims some of the collections may have violated the Affordable Foreclosure Alternative (HAFA) program that went live a few years ago.

The OIG made a few recommendations to FHFA to resolve this issue.

The inspector general said it wants FHFA to review Fannie’s remediation plan to make sure any borrower contributions are consistent with the guidelines, while also overseeing the execution of the GSE’s remediation plan and examining what controls Fannie has over the collection of borrower contributions in California.

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