New Short Sale Guidelines for Fannie and Freddie!

 If you facilitate or negotiate short sales, it is important to know that on August 21, 2012, the Federal Housing Finance Agency (FHFA) announced new short sale guidelines for the servicers of Fannie Mae and Freddie Mac government backed loans that are to be implemented on November 1, 2012.  These new guidelines are intended to reduce documentation requirements, streamline the short sale approval process, and bring faster relief to homeowners who need to sell their homes as a short sale.

The new guidelines address significant issues and outline many needed changes in the short sale industry.  If the servicers of Fannie and Freddie backed mortgages can pull this off, the short sale real estate market should truly see some relief.

Some of the positive changes the new guidelines address include borrower hardships and foreseeable hardships, job and military transfers, standardization and communication issues, deficiency judgments, 2nd mortgage cooperation and accelerating the approval process.

Below is an outline of the new guidelines for the servicers of all Fannie Mae and Freddie Mac back mortgages who have borrowers requesting permission to sell their home as a short sale:

1.  The new guidelines will enable servicers to qualify borrowers wishing to sell their homes as a short sale even if they are current on their mortgage.  The most common reasons for borrower hardship include death of a borrower or co-borrower, divorce, disability and a distant employment transfer or relocation.  The new guidelines will allow the servicers to process short sales for borrowers experiencing these hardships without any additional approval from Fannie Mae or Freddie Mac, even if the borrowers are current on their mortgages.  Additionally, borrowers will qualify for a short sale if they must relocate more than fifty miles from their home because of either new employment or a job transfer.

2.  To help streamline the short sale process for borrowers who are behind several mortgage payments, have a low credit score and are suffering from a serious financial hardship, the new guidelines either reduce or eliminate the need for excessive financial documentation.  The guidelines do not clarify what documentation is required, but if it is any less than what is currently required, the process should be easier.

3.  Service members who receive Permanent Change of Station (PCS) orders will automatically be eligible for a short sale even if they are current on their mortgage.  In the case of PCS orders, the service member will not be under any obligation to contribute funds to cover a shortfall between their loan balance and the sales price of their home.  In other words, they will not be obligated to sign a promissory note or provide a cash contribution in exchange for a deficiency waiver.

4.  The new guidelines also call for a consolidation of the existing short sale program into a single uniform program that offers clear and precise guidelines, which should certainly make it easier for servicers to process and approve short sales.

5.  If you work with short sales regularly, you have probably been faced with the challenge of submitting a short sale package when there is a foreclosure date fast approaching.  The new guidelines provide both servicers and borrowers some clarity and communication on the process of pursuing a short sale when a foreclosure sale date is pending.  These guidelines clarify when a borrower must submit their application and purchase contract in order to be considered for a short sale.  This allows last minute communication and negotiations to be handled in a uniform and fair manner.

6.  If a borrower has either sufficient income or assets that allow them to either sign a promissory note or make a financial contribution toward the deficiency balance, both Fannie Mae and Freddie Mac will waive their right to pursue a deficiency judgment in exchange for either of these contributions.

7.  Lastly, the guideline calls for both Fannie Mae and Freddie Mac to offer up to $6,000 to second lien holders.  Anyone who has short sale negotiating experience understands how a second mortgage lender can hold up or screw up an entire short sale deal.  The new guidelines allow Fannie Mae and Freddie Mac to offer up to $6,000 to second lien holders to help expedite a short sale decision.  These guidelines are not specific as to when as much as $6,000 will be offered, but it does open the door to friendlier negotiations.

While the guidelines look good on paper, the question is whether the servicers can actually implement them without issue.  If you are a short sale facilitator or negotiator and have been working short sales over the past five to six months, you know that the guidelines that were implemented last June did not bring about the anticipated benefits.  Instead of the short sale processing time being reduced, it seems the time was lengthened.  The guidelines seemed precise enough to intrigue us, however in reality; they were ambiguous enough that the servicers did not have to produce much of anything.  Will the servicers be able to abide by these new guidelines? Will they be ready to roll out the new processes by November 1st?  We will see.  On a positive note, any improvement in the short sale process is good and should be welcomed.