The U.S. Department of Housing & Urban Development (HUD) has issued, effective immediately, Mortgagee Letter 09-52, covering short sales and short payoffs. Mortgagee Letter 09-52 provides guidance to lenders and underwriters regarding borrower eligibility when: A previously-owned property was sold for less than what was owed (short sale), or there is principal write down of indebtedness that cannot be refinanced into a new mortgage (short pay off). The topics summarized below were revised or created as a result of these changes in guidance. Mortgagee Letter 09-52 also provides the entire content of each block affected, with changes underlined. The changes will be integrated into the FHA Single Family On-Line Handbooks shortly.
FHA guidance on short sales
Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to:
► Take advantage of declining market conditions, and
► Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g.
Guidance on borrowers current at the time of short sale
Borrowers are considered eligible for a new FHA-insured mortgage if:
► They were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
►The proceeds from the short sale serve as payment in full.
For detailed information, see “Short Sales” at 4155.1 4.C.2.l.
Guidance on borrowers in default at the time of short sale
Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.
For detailed information, see “Short Sales”, at 4155.1 4.C.2.l.
Refinancing with short payoff
FHA will insure the first mortgage where the existing note holder(s) write off the amount of indebtedness that cannot be refinanced into the new mortgage due to a decline in property value and/or a reduction in income.
For detailed information, see “Short Pay Offs”, at 4155.1 3.B.1.f.
Click here for a full copy of Mortgagee Letter 09-52.
For more information, visit www.hud.gov.