Fannie Mae and Freddie Mac Short Sale Guidelines
Fannie Mae and Freddie Mac Short Sale Guidelines
Yesterday, the Federal Housing Finance Agency (FHFA) announced new short sale guidelines for Fannie Mae and Freddie Mac loans. The new guidelines go into effect Nov. 1, 2012. We like most of the new guidelines. The new guidelines “will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship.” We believe that being able to short sale a home while being current on that home’s mortgage is important. We have had many cases where a short sale was deemed not possible, as per the mortgage servicer, because the homeowner was current on his/her mortgage. We also like that “Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale.” At times, it can be nearly impossible to complete a short sale when the second lien holder is different from the first. Hopefully, this new guideline creates an incentive for second lien holders to expeditiously approve short sales.
There is one new guideline that may be an issue for some distressed homeowners looking to complete a short sale: “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.” We have seen this done in the past. For some it might make sense to make a financial contribution, but for others it will not make sense to sign a 30 year promissory note or raid their 401k to complete a short sale.
At any rate, this appears to be a move in the right direction. Here are the guidelines ( from the FHFA News Release):
The new guidelines:
- Offer a streamlined short sale approach for borrowers most in need: To move short sales forward expeditiously for those borrowers who have missed several mortgage payments, have low credit scores, and serious financial hardships the documentation required to demonstrate need has been reduced or eliminated.
- Enable servicers to quickly and easily qualify certain borrowers who are current on their mortgages for short sales: Common reasons for borrower hardship are death, divorce, disability, and distant employment transfer or relocation. With the program changes, servicers will be permitted to process short sales for borrowers with these hardships without any additional approval from Fannie Mae or Freddie Mac, even if the borrowers are current on their mortgage payments. 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.
- 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.
- Offer special treatment for 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.
- Consolidate existing short sales programs into a single uniform program: Servicers will have more clear and consistent guidelines making it easier to process and execute short sales.
- Provide servicers and borrowers clarity on processing a short sale 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.
Long Island Foreclosure Attorneys
If you have any questions about this or other legal issues, feel free to call the Law Firm of Vaughn, Weber & Prakope, PLLC at 516-858-2620 today to speak to an Attorney.
Fannie and Freddie set new short sale guidelines.
Freddie Mac’s new short sale timelines require servicers to make a decision within 30 days of receiving either 1) an offer on a property under Freddie Mac’s traditional short sale program or 2) a completed Borrower Response Package (BRP) requesting consideration for a short sale under HAFA or Freddie Mac’s traditional short sale program. (BRPs are standardized assistance applications developed as part of the Servicing Alignment Initiative.)
If more than 30 days are needed, borrowers must receive weekly status updates and a decision no later than 60 days from the date the complete BRP is received. This will help servicers who may need more time to obtain a broker price opinion or a private mortgage insurer’s approval on a BRP or property offer.
In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.
Freddie Mac will use the new timelines to evaluate servicer compliance with the SAI and its own servicing requirements.
Under the new guidelines, servicers will be required to acknowledge receipt of a short sale offer within three business days and notify the borrower within five business days if the information is incomplete. Within thirty days, the servicer must send an evaluation notice or notify the borrower that the offer is still under review. If the offer cannot be fully evaluated within 30 days, the servicer must update the borrower on the status each week thereafter. Servicers will also be required to keep Fannie Mae apprised if a short sale evaluation takes longer than 30 days.
I was recently informed of a short sale that had been in contract for 18 months without a response from the lender/servicer. The buyer finally walked away. Hopefully, these new guidelines will help speed up the short sale process. However, a short sale may/may not be in your best interest. Call 516-858-2620 If you would like to speak with an attorney regarding short sales.