New guidelines aligned to expedite short sales

New federal short sale guidelines, which take effect November 1, are promising quicker and easier short sale transactions for consumers.

The Federal Housing Finance Agency (FHFA) announced last week that Fannie Mae and Freddie Mac have issued new, clear guidelines to their mortgage servicers that will align and consolidate existing short sales programs into one standard short sale program.

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. Servicers will be able to 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.

Allowing a homeowner who is not late or has not missed a payment to apply for a short sale is extremely helpful to the consumer, according to Courtney Franklin with Keller Williams Real Estate in Blue Bell.

“Previously homeowners were prevented from applying if they were current but with this change, they will be better off. And by making this change, it may alleviate some of the scammers who were scaring people and taking advantage of them in a short sale,” he said.

“Of all the pending changes, Fannie Mae and Freddie Mac offering up to $6,000 to second lien holders may have the greatest impact,” Franklin said. “Junior lien holders have been able to hold out and not agree to payoffs by the senior lien holder and therefore bring the whole process to a halt.  With the implementation of this guideline it takes the junior lien holders out of the loop.”

“There’s nothing short about a short sale,” said Bob Hoobler of Exit Platinum Plus Realty in Camp Hill. “I think they’re trying to put guidelines in place to shorten the process but it’s hard because every case is different.”

Hoobler, who specializes in foreclosures and short sales, said a “fast” short sale usually takes 90 to 120 days from the time an agreement is signed to closing. “If banks could streamline their process and assign a case manager to each sale, that would help tremendously. We’ve seen a number of sales where the bank has changed the terms at the end of the transaction, especially with buyer assists, and it’s really made the process frustrating.”

With the other guideline changes, Franklin is skeptical but hopeful. “It’s nice to see that they’re stepping forward to make these changes to help streamline the process so properties don’t have to get into foreclosure process,” he said. “But the bottom line is the banks have so many layers of bureaucracy that we will have to see if there is any significant change. We’ve had two recent short sales that were each handled by five different people within the bank. So in theory, these new guidelines should stop these types of problems and hopefully not add an additional layer of bureaucracy.”

The National Association of Realtors® (NAR) worked closely with FHFA and Fannie Mae and Freddie Mac to create the new guidelines and has long advocated improving the short sale process to provide more distressed homeowners with alternatives to foreclosure. NAR believes that improving short sale eligibility will allow more families to avoid foreclosure and reduce the negative impact foreclosures have on families and communities. Short sales also help stabilize home values and neighborhoods by keeping homes occupied, which benefits the housing market and aids in the recovery.

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.

FHFA encourages homeowners to reach out early to their lender or servicer if they face any hardship affecting their ability to pay their mortgage.