The Federal Housing Finance Agency (FHFA) has announced new, more clear, guidelines, for mortgage companies that will bring many short sale programs into just one and streamline the timeframes as well. The new short sale streamline program is going to enable lenders to speed up the process of qualifying eligible homeowners, which should, in theory, speed up the short sale process (that can currently take many months to complete). The new guidelines show the FHFA’s and Fannie Mae’s desire to help people avoid foreclosure and stabilize communities.
The new guidelines, which go into effect on Monday (11.1.12), will permit a homeowner with a Fannie Mae or Freddie Mac backed-mortgage (remember Fannie/Freddie doesn’t make mortgages) to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship. Lenders will be able to expedite a short sale for homeowners with hardships such as divorce, job relocation, death of a spouse, etc without going to Fannie Mae or Freddie Mac for their approval.
Here are the details:
- Those that have already missed payments will no longer be requested to show hardship in order to have the short sale approved. Saving time and paperwork.
- Homeowner hardships such as death, divorce, disability, and job relocation will no longer require additional approval from Fannie or Freddie. The lenders that service the loan will be able to approve these without submitting it to the GSE that backs it.
- Fannie and Freddie will waive the right to pursue deficiency judgments against homeowners in exchange for a financial contribution when a borrower has sufficient income or assets to make cash contributions or sign promissory notes:
- Service members who are being relocated will be have their short sales approved automatically, 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.
- Consolidating existing short sales programs into a single uniform program will give servicers more clear and consistent guidelines, making it easier to process and execute short sales.
- New guidance will clarify when a borrower must submit their application and a sales offer to be considered for a short sale when there is already an NOD, or the foreclosure process has begun, so that last minute communications and negotiations are handled in a uniform and fair manner and no homes are foreclosed on with a short sale closing scheduled for right around the corner.
- 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. Increasing this offer to $6,000 will make it more likely for them to accept, as will the knowledge that $6,000 is also the cap and they will not be able to get any more out of the deal no matter what they do. It is basically take $6,000 or get nothing if the home goes into foreclosure.
- The last item, and this is a big one, is: Lenders/servicers are now required to review and respond to short sale offers within 30 days of receipt of the offer. Weekly status updates must be provided to the seller/buyer is the offer is still under review after 30 days and a final decision must be communicated to the seller/buyer 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, no matter what.