The Federal Housing Finance Agency (FHFA) recently announced that Fannie May and Freddie Mac are issuing new, clear guidelines to their mortgage servicers that will align and consolidate existing short sales programs into one standard short sale program. The streamlined program rules will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.
The new guidelines, which go into effect November 1, 2012, will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship. Servicers will be able to expedite processing a short sale for borrowers with hardships such as death of a borrower or co-borrower, divorce, disability, or relocation for a job without any additional approval from Fannie Mae or Freddie Mac.
The FHFA’s new guidelines:
• Offer a streamlined short sale approach for borrowers most in need: To move short sales forward expeditiously for those borrowers who have missed several mortgage payments, have low credit scores, and serious financial hardships the documentation required to demonstrate need has been reduced or eliminated.
• Enable servicers to quickly and easily qualify certain borrowers
who are current on their mortgages for short sales: Common reasons for
borrower hardships are death, divorce, disability and distant employment transfer or relocation. With the program changes, servicers will be
permitted to process short sales for borrower with these hardships
without any additional approval from Fannie Mae or Freddie Mac, even if
the borrowers are current on their mortgage payments. Borrowers will
now qualify for a short sale if they need to relocate more than 50 miles from their home for a job transfer or new employment opportunity.
• Fannie Mae and Freddie Mac will waive the right to pursue
deficiency judgments in exchange for a financial contribution when a
borrower has sufficient income or assets to make cash contributions or
sign promissory notes: Servicers will evaluate borrowers for additional capacity to cover the shortfall between the outstanding loan balance
and the property sales price as part of approving the short sale.
• Offer special treatment for military personnel with Permanent
Change of Station (PCS) orders: Service members who are being relocated will be automatically eligible for short sales, even if they are
current on their existing mortgages, and will be under no obligation to
contribute funds to cover the shortfall between the outstanding loan
balance and the sales price on their homes.
• Consolidate existing short sales programs into a single uniform
program: Servicers will have more clear and consistent guidelines
making it easier to process and execute short sales.
• Provide servicers and borrowers clarity on processing a short sale
when a foreclosure is pending: The new guidance will clarify when a
borrower must submit their application and a sales offer to be
considered for a short sale, so that last minute communications and
negotiations are handled in a uniform and fair manner.
• Fannie Mae and Freddie Mac will offer up to $6,000 to second lien
holders to expedite a short sale: Previously, second lien holders could slow down the short sale process by negotiating for higher amounts.
This alignment comes as part of a broader FHFA effort, the Servicing
Alignment Initiative, to streamline Fannie Mae and Freddie Mac programs
for short sales and other foreclosure alternatives to assist struggling
homeowners. FHFA announced guidelines in June that establish strict
timelines for servicers considering short sales.
Servicers are required to review and respond to short sales within 30 days of receipt of a
short sale offer; they must provide weekly status updates to the
borrower ih the offer is still under review after 30 days, and they must make and communicate final decisions to the borrower within 60 days of
receipt of the offer and complete borrower response package. These
borrowers will not be eligible for a new mortgage backed by Fannie Mae
or Freddie Mac for at least two years after a short sale.