Fannie Mae and Freddie Mac, the two entities that control more than 60 percent of U.S. mortgages, are streamlining short sales to more easily qualify eligible borrowers.
The new program will help “underwater” borrowers and others with certain hardships avoid foreclosure, according to the independent regulator over Fannie and Freddie, the Federal Housing Finance Agency (FHFA).
For example, 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.
A short sale involves a property that sells for less than the balance owed on its mortgages. Banks can opt for a short sale over a drawn-out and costlier foreclosure process. But the process for short sales can also be complex and lengthy.
The new short sale guidelines for mortgages owned by Fannie and Freddie will go into effect Nov. 1.
Homeowners with a Fannie or Freddie mortgage will be able to sell their home in a short sale even if they are current on their mortgage but have an eligible hardship.
Mortgage servicers will be able to expedite 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 new guidelines offer a streamlined short sale for borrowers who have missed several mortgage payments, and have low credit scores. In the cases of serious financial hardships, the documentation required to demonstrate need has been reduced or eliminated.
Here are other components of Fannie and Freddie’s streamlined short sales:
• 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.
• Special treatment will be provided to 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.
• Servicers and borrowers will see greater clarity 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. 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.