Improvements to the short sale process on loans owned or guaranteed by the government-sponsored housing enterprises are expected to streamline and shorten the process.
On Tuesday, the Federal Housing Finance Agency announced that short-sale programs would be streamlined between Fannie Mae and Freddie Mac — making qualification for short sales quicker and easier for lenders and servicers. Fannie’s Home Affordable Foreclosure Alternative and Freddie’s HAFA and proprietary short sale programs will be consolidated into a single uniform program –the Standard Short Sale/HAFA II — with more clear and consistent guidelines.
Only mortgage owned or guaranteed by Fannie or Freddie are eligible.
When a foreclosure sale is pending, the new guidance will clarify when a borrower needs to submit an application and a sales offer to be considered for a short sale. The change is intended to ensure last- minute communications and negotiations are handled in a uniform and fair manner.
Expedited short-sale processing reduces or eliminates entirely the documentation required to demonstrate the need for a short sale on loans to seriously delinquent borrowers with low credit scores who have experienced a hardship such as a divorce, a long-term disability or death. Other qualified hardships include business failure, increased housing expense and disasters. The expedited process will also be available to borrowers who relocate more than 50 miles for a job.
Even borrowers who are current but have experienced a hardship will be able to receive expedited short-sale processing without the servicer having to seek additional approval from Fannie or Freddie.
If a borrower has sufficient income or assets to make cash contributions or sign a promissory note, Fannie and Freddie will waive the right to pursue a deficiency judgment in exchange for a financial contribution. The waiver will require servicers to evaluate the borrower’s additional capacity to cover the difference between the pricing balance and the sales price based on a short sale.
Members of the military will automatically be eligible for a short sale when they have a permanent change of station order. They don’t need to be delinquent and will not be obligated to contribute funds to cover a deficiency balance.
Another enhancement has second lien holders receiving up to $6,000 to expedite a short sale. The payments are intended to prevent second lien holders from slowing down the short-sale process by negotiating for higher amounts.
Borrowers who obtain a short sale won’t be eligible for a new loan backed by Fannie or Freddie for at least two years.
“The new policies will remove or alleviate many of the current obstacles to enabling underwater homeowners to sell their properties,” said Center for American Progress Director of Housing Finance and Policy Julia Gordon in a statement.
Word of the new policies, which become effective on Nov. 1, follow FHFA’s April announcement that servicers must respond to short-sale requests within 30 calendar days of receiving an offer and a complete borrower response package. FHFA also limited the timetable for final decisions to 60 calendar days.
A notice Tuesday from Freddie indicated that it is delegating greater authority to all of its servicers to approve short sales for many borrowers who are not delinquent but face financial hardships.
“These changes will further empower the industry to minimize foreclosures and help Freddie Mac in its mission to minimize credit losses and fortify a national housing recovery,” Freddie Senior Vice President Single-Family Servicing and REO Tracy Mooney said in the notice.
Fannie will be issuing its own guidance on Wednesday.
The new guidelines are effective on Nov. 1.
