The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac—the government-sponsored enterprises (GSEs)—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 Nov. 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.
“These new guidelines demonstrate FHFA’s and Fannie Mae’s and Freddie Mac’s commitment to enhancing and streamlining processes to avoid foreclosure and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job.”
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 hardship are death, divorce, disability, and distant employment transfer or relocation. With the program changes, servicers will be permitted to process short sales for borrowers with these hardships without any additional approval from the GSEs, 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 sale 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 lastminute 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.
“As the leading advocate for homeownership, Realtors® know that when a family is absolutely unable to keep their home, a short sale is often the best option for homeowners hoping to avoid foreclosure,” said National Association of Realtors (NAR) President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Realtors appreciate FHFA’s efforts to increase the number of short sale approvals, which limit the losses incurred by homeowners, lenders, the federal government and taxpayers.”
NAR worked closely with FHFA and the GSEs to create the new guidelines and has long advocated improving the short sale process to provide more distressed homeowners with alternatives to foreclosure. NAR believes that improving short sale eligibility will allow more families to avoid foreclosure and reduce the negative impact foreclosures have on families and communities. Short sales also help stabilize home values and neighborhoods by keeping homes occupied, which benefits the housing market and aids in the recovery.
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 if 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.
"We commend the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac for their hard work on aligning and improving short sale policies. The new policies will remove or alleviate many of the current obstacles to enabling underwater homeowners to sell their properties," said Julia Gordon, director of housing finance and policy for the Center for American Progress. "One very significant improvement is that people who need to sell their home due to a distant employment transfer, a death or divorce in the family, or the onset of disability will no longer have to default on their mortgage simply to get considered for a short sale."
