FHFA Releases New Short Sale Guidelines For Fannie Mae & Freddie Mac

From the FHFA News Release August 21, 2012:

The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to align existing short sales programs into one standard short sale program and issue clear guidelines to mortgage servicers. With these changes, Fannie Mae and Freddie Mac will allow homeowners with eligible hardships to sell their home in a short sale even if they are current on their loans. FHFA, Fannie Mae and Freddie Mac are making these changes to help more homeowners avoid foreclosure, keep homes occupied and help maintain stable communities. The streamlined program rules will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale. The changes will take affect November 1, 2012.

This is important for so many reasons. As an agent who negotiates short sales for seller clients, it’s maddening trying to keep up with not only each loan servicer’s short sale guidelines, but also Fannie & Freddie’s guidelines. Having one set of standards is going to make a lot of people’s live much easier.

The key changes include the following:

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. (This is the most important change in my opinion! In the past, if you were current on your mortgage payments, it was difficult to get a short sale approved. Many homeowners want to do a short sale to avoid having to miss payments, which really hurts your credit score. They will now have this option.)

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. (This could be a good or a bad thing. Their idea of “sufficient income or assets” may be very different from yours.)

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.

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 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.

To read the Press Release in its entirety, CLICK HERE.

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One comment

  1. […] UPDATE: Roughly 2 years after writing this post, I am happy to announce that FHFA has released new short sale guidelines for Fannie Mae and Freddie Mac loans that will allow borrowers to be eligible for a short sale even if they are current on their mortgage payments. Read my blog post HERE. […]

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