New short sale rules designed to expedite processby Tim Manni
Quick and easy, that’s the name of the game. When it comes to federal housing programs, if recent changes aren’t centered on expanding the pool of qualified borrowers, they’re focused on streamlining the process to make it simpler and easier.
The Federal Housing Finance Agency announced on Tuesday that new short sale rules will go in effect on Nov. 1, 2012. The changes are designed to “enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.” While I certainly won’t quibble with a clearer and more concise set of rules for short sale approval, I’m just a little skeptical these changes (many which are very general) will have a meaning impact. As the old cliché goes, actions speak louder than words.
- 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.