Wells Fargo has made a short sale policy change that will likely lead to more foreclosures, according to a memo obtained by American Banker.
The San Francisco-based bank and mortgage lender will no longer grant extensions on short sales tied to loans serviced by other investors.
The transactions must now close by the date in their approval letter or the company will carry on with foreclosure proceedings.
Only extension letters dated September 14 or earlier will be honored by the company going forward.
The new policy apparently went into effect over the past couple months and came in response to various investor and loan servicer changes, including those at Fannie Mae, Freddie Mac, and HUD.
Wells Fargo spokeswoman Mary Berg stressed that the company will still grant short sale extensions on its own loans, including those from Wachovia, which it acquired back in late 2008.
In recent months, servicers have grown more reluctant to offering short sales out of fear they’ll fall through.
It has to do with the fact that potential buyers are losing their jobs ahead of closing, or banks simply aren’t able to close in a timely fashion, resulting in the homeowner walking away.
There’s also the issue of falling home prices, which make short sales all the more shorter and less likely to be accepted by the lender.
A short sale is a transaction in which a home is sold for less than the amount owed on the mortgage(s), with the lender agreeing to a discounted payoff to avoid a costly foreclosure proceeding.