Fannie Mae, Freddie Mac Issue New Short Sale Guidelines

by:  Sorohan, Mike; MBA NewsLink

The Federal Housing Finance Agency yesterday announced new standard short-sale guidelines to be used by Fannie Mae and Freddie Mac.

The guidelines to Fannie Mae and Freddie Mac mortgage servicers are designed to align and consolidate existing short sales programs into one standard short sale program. The streamlined program rules will enable lenders and servicers to qualify eligible borrowers for a short sale more quickly and easier.

The guidelines, which go into effect Nov. 1, 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. Servicers can expedite processing 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.

Key components of 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 qualify certain borrowers who are current on their mortgages for short sales. Servicers will be permitted to process short sales for borrowers with certain hardships, such as death, divorce or other life change, without additional approval from Fannie Mae or Freddie Mac, even if the borrowers are current on their mortgage payments. Borrowers would 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.


• Deficiency judgments. 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.


• Service member guidelines. Service members who are being relocated would 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.


• Second lien holders. 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.

FHFA announced guidelines in June that establish strict timelines for servicers considering short sales, part of a broader effort known as the Servicing Alignment Initiative, to streamline Fannie Mae and Freddie Mac programs for short sales and other foreclosure alternatives to assist struggling homeowners.

The programs being aligned are Fannie Mae’s Home Affordable Foreclosure Alternative and proprietary short sale programs and Freddie Mac’s HAFA and proprietary short sale programs. The current Fannie Mae and Freddie Mac HAFA programs are modeled on the Treasury Department’s Home Affordable Foreclosure Alternative program, but with this guidance, there will be one program offered by Fannie Mae and Freddie Mac, known as the Standard Short Sale/HAFA II.

“Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities,” said Leslie Peeler, senior vice president with Fannie Mae. “It is vital that servicers, junior lien holders and mortgage insurers step up to the plate with us. These new guidelines will open doors to help more homeowners qualify for short sales, remove barriers to completing short sales and make the process more efficient for homeowners and servicers.”