Wells Fargo has stopped granting extensions for distressed homeowners to complete short sales, a move that will expedite foreclosures.
In a short sale, a home is sold for less than the amount owed on the mortgage and the lender accepts a discounted payoff. The loss to the lender can be smaller than if it had to foreclose and liquidate the property.
But in a memo emailed to short sale vendors last month and obtained by American Banker, Wells said it will no longer postpone foreclosure or trustee sales for those who do not close short sales by the date in their approval letter from the company. Only extension letters dated Sept. 14 or earlier would be honored, Wells said.
The change comes after Fannie Mae told servicers early last month that they needed to stop unnecessarily delaying foreclosures. The GSE said it would hold servicers responsible for unexplained delays to foreclosures by issuing fines and conducting on-site reviews of a servicer’s operations.
Mary Berg, a spokeswoman for Wells, said its new policy on short sales was put in place “over the past couple of months … in response to various investor changes.”
Those investors, she said, “would include the GSEs, Department of Housing and Urban Development (HUD) and those investing in private-label” MBS.
Yet Wells’ decision also follows efforts by the Obama administration to encourage short sales for borrowers who do not qualify for loan modifications.
“It makes no business sense why they are doing this, since it’s wrong for the borrowers and for the government,” said Eli Tene, chief executive of IShortSale, a Woodland Hills, Calif., firm that advises distressed borrowers.
Wells said it will make an exception to the new policy for loans in its own portfolio, which includes those it acquired with Wachovia Corp. in 2008. For these loans, Berg said, Wells allows for one foreclosure postponement, provided the following: it has an approved short sale in hand that includes approvals from junior lienholders and mortgage insurers; the buyer has proof of funds or approved financing; and the short sale can close within 30 days of the scheduled foreclosure sale.
Experts on short sales said that in recent months servicers have been reluctant to approve such transactions out of concern that the buyer will not get financing, or that the buyer’s lender will not be ready to close, causing the buyer to lose patience and walk away from the deal and further prolonging the process.
Wells’ move preceded the recent revelations of faulty paperwork at two major servicers — JPMorgan Chase & Co. and Ally Financial Inc. — which said they had suspended thousands of foreclosure actions to review their processes.
On Thursday, Acting Comptroller of the Currency John Walsh said he had told seven major servicers, including Wells, to review their processes. Another Wells Fargo spokeswoman, Vickee J. Adams, said the company’s “policies, procedures and practices satisfy us that the affidavits we sign are accurate.”