If you think there couldn’t possibly be yet another new requirement facing servicers, think again. One of the latest involves policy changes by Fannie Mae that will affect almost all servicers, and it took effect July 1, 2012.
The gist of the new change: Fannie Mae will require that servicers satisfy outstanding homeowners association claims in order to preserve Fannie’s first lien position.
“Fannie Mae requires servicers to protect the priority of the mortgage lien and to clear all liens for delinquent homeowners association dues and condo assessments on properties acquired through foreclosure or deed-in-lieu of foreclosure,” according to the announcement issued by Fannie Mae in April. (www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1205.pdf)
That means that if you hold any foreclosed properties or deeds-in-lieu of foreclosure, you need to first determine whether Fannie Mae’s first lien position might be in danger.
Servicers holding any of these properties in the 16 so-called super-lien states and the District of Columbia need to be especially vigilant. In those states, HOA liens can often take precedence over first mortgages.
Fannie Mae is requiring that servicers pay off any outstanding balances due to HOAs when borrowers are 60 days delinquent on assessments, if the lender’s first position status is at risk.
In the case of foreclosures or deeds-in-lieu of foreclosure, those liens must be cleared no later than 30 days after the foreclosure sale or deed-in-lieu acceptance.
The GSE is encouraging lenders and servicers to comply with this new policy requirement immediately, although it became mandatory starting July 1.
Many servicers seem to be unaware of the new requirement, as well as the recent deadline to meet it. It would be wise to become familiar with what Fannie Mae’s guideline change will mean for your company, as without some foresight and planning, I believe most servicers could have a difficult time complying with the requirement.
Why? Servicers don’t typically maintain a database of HOAs associated with a property after loan origination. They may not even be aware that there is an HOA or condo association connected with a property until problems start to arise during the foreclosure process.
In turn, HOAs often have no idea how to reach servicers or lenders in order to present claims for unpaid accounts. That’s a problem.
Timing is another issue. How will you know when a borrower is 60 days behind on their HOA payment? It’s not something that servicers historically track. Think about it. Do you know exactly when any of your borrowers have decided to stop making their HOA payments?
Dealing with HOA-related issues and claims hasn’t been on servicers’ radars because ten years ago, or even five years ago, it was a relatively small problem. That’s changed because of current market conditions, but also because the number of HOAs is rapidly growing. (Check: http://www.mortgageservicingnews.com/blogs/lens/homeowners-association-mortgage-loan-defaults-1030485-1.html)
Industry estimates calculate that the number of properties associated with an HOA could be as high as 25% of the overall market today. Considering that up to 80% of all new construction is connected to an HOA or condo association, that number can only be expected to increase.
As is usually the case, however, there is a solution for this problem.
There are steps that can be taken to ensure that you comply with Fannie Mae’s new requirement on HOA claims. Work with a company that tracks information on HOAs, and that can help you negotiate with associations so that claims are settled fairly.
Brent Stokes is senior vice president of Sperlonga Data & Analytics of Arlington, Virginia. He can be reached at B.Stokes@SperlongaData.com.