New Fannie & Freddie Short Sale Rules
It’s hard to believe but about 4.6 million borrowers with loans backed by the two mortgage- finance giants, Fannie Mae and Freddie Mac, are underwater. About 80% of those homeowners have yet to miss a mortgage payment. Until now, homeowners who have not yet defaulted on their mortgage found it very difficult, if not impossible, to obtain short sale approval since they are still current on their mortgage. Now with the help of a federal house regulator, the Federal Housing Finance Agency (FHFA), it’s going to be even easier to short sale your home.
How Short Sales Can Help
Short sales help borrowers avoid foreclosure and are therefore considered to be in the best interest of the lending industry and the economy. Typically, short sales sell for a 10% discount on regular homes, compared with a 30% discount for foreclosures.
There have been a number of measures lately that assist homeowners in getting approved for a short sale. For instance, earlier this year, the federal housing regulator set out to place a time limit on banks—requiring that they respond to a short sale offer within 30 days of receiving it. The measures to facilitate short sales come at a necessary time, since homeowners and real estate agents alike have long complained that the process is difficult and lengthy to complete.
What Are The New Measures
One part of the new plan is for Fannie and Freddie Mac to place a $6,000 cap on the amount of money that holders of second mortgages can receive from a short sale once it is completed. This is merely a way to prevent the mortgage holders (of a home equity loan, for example) from haggling over their piece of the home-sale proceeds. But those second lien holders would still retain the right to reject approval of the short sale offer if they saw fit. One possible challenge is that $6,000 may not be enough for many second mortgage holders. They may want to hold out on approving a short sale because they don’t have a right to foreclose on the property and are seeking ways to get paid. Capping the number at $6,000 may be too small in some situations, and at the very least make it important for homeowners to have experienced help when navigating the short sale waters.
It’s important to note that the changes only affect underwater mortgages guaranteed by Fannie and Freddie, which back the majority of U.S. home loans. The FHFA has the authority, as regulator for Fannie and Freddie Mac, to force changes on the lending industry.
The new rules, which go into effect November 1st, also allow homeowners with missed mortgage payments and serious financial problems to submit fewer documents to be approved for a short sale. Homeowners will receive quicker approval if they are experiencing a financial hardship such as a lost job, divorce, and death in the family or job.
If you are experiencing any difficulty with paying your mortgage and want to learn more about the short sale process contact one of our New Jersey short sale lawyers to assist you with these matters. You don’t need a big wallet (or pay anything at all) to get sound advice and be informed of your options.