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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2012

Keep an Eye on Changing Short-Sale Trends

New FHFA guidelines mean quicker turnarounds for underwater properties

Things are changing in the world of short sales. In an attempt to streamline the short-sale process for Fannie Mae and Freddie Mac mortgages, the Federal Housing Finance Agency (FHFA) issued new guidelines for short-sale transactions that went into effect this past Nov. 1. Under the new guidelines, homeowners can sell their homes via a short sale even if they are not delinquent on their mortgage if they have an eligible hardship.

Eligible hardships include divorce, disability, death of a borrower or co-borrower, or if a homeowner needs to move more than 50 miles for a job. For borrowers who are facing financial hardships, have low credit scores and are behind in their mortgage payments, the financial documentation required to demonstrate need has been reduced or eliminated, depending on the circumstances.

To make the short-sale process faster, the new guidelines from the FHFA allow servicers to qualify more quickly borrowers who are current on their mortgages for a short sale (with an eligible hardship) without additional approval from Fannie Mae or Freddie Mac. In addition, Fannie and Freddie will waive their rights to pursue a deficiency judgment in exchange for a financial contribution from the homeowners to cover the shortfall between the outstanding loan balance and the sale price — when homeowners show sufficient income or assets to make the cash contribution at closing or they agree to sign a promissory note at closing. 

To further decrease the often lengthy short-sale process, existing short-sale programs will be unified into one program with clear and consistent guidelines. Second-lien holders, often a stumbling block for short sales, will be offered as much as $6,000 by Fannie Mae and Freddie Mac to speed up a short sale. Second-lien holders in the past have slowed down the short-sale process by negotiating for higher amounts.

In addition, as of this past June, new FHFA guidelines require mortgage servicers to review and respond to requests for short sales within 30 days of a short-sale offer. The recent mortgage settlement between the nation’s five largest banks also requires tighter short-sale timelines. Both of these moves represent a big improvement from some of the short-sale files in limbo with lenders at 365 days or more. This backlog has caused not only more strain on banks and servicers, but also homeowners who have a legitimate need to sell their property quickly because of a serious delinquency, relocation or other financial hardship.

Another critical issue when dealing with Fannie Mae and Freddie Mac short sales was what many considered arbitrary blacklisting of companies engaged in short-sale transactions. The FHFA has implemented a new anti-fraud initiative, which requires Fannie and Freddie to report to the FHFA any company alleged to have engaged in financial misconduct. FHFA will determine whether or not to suspend these companies from doing business with Fannie, Freddie or any of the Federal Home Loan Banks, and the companies will have a chance to address any allegations.

Short-sale transactions are not showing signs of slowing down any time soon. Lenders will be making much faster decisions on offers submitted, and mortgage originators must be ready to capitalize on the opportunities available in this market. Now is the time to make the most of the short-sale trend and help your clients close on the home they want — at the price they want. 


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