The Federal Housing Finance Agency has announced new guidelines from Fannie Mae and Freddie Mac for mortgage servicers that will streamline short sales rules and expand homeowners eligible for short sales.
The new guidelines, which go into effect Nov. 1, 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, provided they can prove a hardship, the FHFA said Tuesday.
Servicers will be able to expedite processing a short sale for borrowers who have eligible hardships such as death of a borrower or co-borrower, divorce, disability, or relocation more than 50 miles away for a job, without additional approval from the GSEs.
The new rules will also reduce or eliminate the documentation required for borrowers who have missed several mortgage payments, have low credit scores, and serious financial hardships.
“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 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.”
Credit unions with second mortgages and home equity loans and lines on their books may be pleased with another component of the new rule, in which Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale. The move is an attempt to speed up on the approval process by avoiding negotiations for higher settlement amounts.
Fannie Mae and Freddie Mac also waived 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, the guidelines said.
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.
Finally, 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, the rules said.
The new guidance follows FHFA rules released in June that require servicers to review and respond to short sales within 30 days of receipt of a short sale offer. Servicers must provide weekly status updates to borrowers if the offer is still under review after 30 days, and must make and communicate final decisions to the borrower within 60 days of receipt of the offer.
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