Enhanced short sale guidelines for Fannie Mae and Freddie Mac loans will enable more struggling homeowners to short sell their home faster and avoid foreclosure.
The new rules include short sales for eligible homeowners even if they are current on their mortgage, help for military personnel, financial incentives for second lien holders to drop their claim and reduced documentation, according to the Federal Housing Finance Agency, Fannie and Freddie’s overseer.
The rules also consolidate existing programs into one “Standard Short Sale Home Affordable Foreclosure Alternative (HAFA II)” program to take some of the confusion out of the process.
“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.
Typically reserved for homeowners who’ve defaulted on payments and often taking as long as a year to complete, a short sale occurs when a homeowner sells the home for less than the remaining mortgage balance, provided a buyer is available and the lender agrees to the deal.
The Feds want to speed up short sales because they comprise one third or more of the housing market, depending upon the location and inventories around the nation are low.
Short sales also can be a buyer bargain, selling for as much as 44 percent less than comparable homes, according to Christie Farrell, a spokeswoman for MLS Listings, Inc. which tracks sales, prices and other listing data for San Mateo, Santa Clara, San Benito, Santa Cruz and Monterey counties.
Short sales comprised an estimated 18.9 percent of sales in the larger nine-county San Francisco Bay Area resales in July, up from 18.8 percent in June and up from 18.6 percent a year earlier, according to San Diego, CA-based DataQuick.
Earlier national rules, which remain intact, require servicers to review and respond to short sale requests within 30 days of receipt of a short sale offer, provide weekly short sale status updates to the borrower and make and communicate final decisions to the borrower within 60 days of receipt of the offer.
• Qualifying borrowers must have an existing Fannie Mae or Freddie Mac mortgage.
• The borrower must demonstrate a financial hardship, including unemployment, divorce, long-term disability, distant employment transfer and others
• Borrowers who need to relocate more than 50 miles away for a new job, including military service members, can be current or delinquent on their mortgage.
• Except for service members and homeowners in California and other states that forbid it, lenders can come after borrowers for some or all of the shortfall, if the lender deems them capable of any payments.
• HAFA II short sellers will not be eligible for a new mortgage backed by Fannie Mae or Freddie Mac for at least two years after a short sale.
For those who qualify, the new rules will:
• Streamline the process by reducing or eliminating documentation for borrowers who have missed several mortgage payments, have low credit scores, and serious financial hardships.
• Enable servicers to quickly and easily qualify borrowers who are current on their mortgages, but face financial hardship.
• Automatically qualify service members who are being relocated, even if they are current on their existing mortgages. They will be under no obligation to cover any shortfall – the difference the outstanding loan balance and the sales price.
• Allow Fannie Mae and Freddie Mac to offer up to $6,000 to second lien holders to expedite a short sale. Previously, second lien holders could slow down or derail the short sale process by negotiating for higher amounts.
More strategic information is available from:
• Jane Evers’ look at short sales from the homeowner’s perspective, in “A Homeowner’s Guide To Short Sales.”
• National Association of Exclusive Buyer Agents’ (NAEBA) “Short Sales Are a Long Shot For America’s Home Buyers – 51 Critical Things Buyers Need to Understand About Short Sales”