Federal Housing Finance Agency Announces Program to Make the Short Sale Process Easier for Owners of Underwater Homes
August 22, 2012
According to an article in the Wall Street Journal Updated August 21, 2012, short sales should get easier. The article cites an announcement by the Federal Housing Finance Agency of new measures intended to make “short sales” of underwater homes easier for homeowners. Sources in the article note the higher recovery for the lender in short sales as opposed to completing a foreclosure, but borowers, sellers and real estate professionals have continued to complain about delays in the process and a lack of responsiveness from the mortgage companies. The article, available at http://online.wsj.com/ is by Alan Zibel.
The new guidelines that are contained in the announcement pertaining to Fannie Mae and Freddie Mac loans:
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 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
: 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.
(Quote from the announcement.)
Hopefully, the new guidelines will allow those who would benefit from short sales to complete the process faster and with more consistent results. I discuss issues that might affect whether a short sale is a good idea and effect of a short sale on credit separately.