New Short Sales Guidelines Announced by FHFA
Good news for homeowners of underwater properties. There are new guidelines to become effective November 1, 2012 that will speed up the short sale of properties. Last Tuesday the Federal Housing Finance Agency (FHFA) announced a number of guidelines that are supposed to make short sales simpler and easier.
These new measures require the two housing giants, Fannie Mae (FNMA) and Freddie Mac (FMCC) to consolidate the current short sale programs into one streamlined program and allow lenders and servicers to promptly and easily get eligible borrowers approved for a short sale.
One new positive change is that homeowners with mortgages backed by either FNMA or FMCC will now be able to short sale their homes without having to default on their mortgage. As the short sale process stands now, if a homeowner was able to make timely payments of principal and interest on their mortgage, they would not qualify for a short sale.
The government has now started to realize that if a home is underwater, meaning its worth less than what the homeowner owes on the mortgage, it doesn’t make sense to keep paying into a black hole. This allows homeowners to get out of a bad investment in the best possible way without having to default on their mortgage and get a ding on their credit.
New Set of Rules
What are some of the new set of rules? First, although the property owner does not have to stop paying their mortgage in order to apply for short sale, the owner must have an eligible hardship (divorce, death of a borrower or co-borrower, disability or relocation for a job). The servicers will be able to allow short sales without any additional permission from FNMA or FMCC.
Secondly, there will be fewer documents that are required to be completed for a short sale, thereby aiding those homeowners who are in danger of foreclosure. It would also make the process more efficient. Third, the mortgage servicers will have to make the guidelines clearer and more uniform, thereby leading to faster processing of short sales. Second lien holders will only be able to get a maximum of $6,000 from the proceeds of the short sale, which make it much less attractive for them to agree to a short sale approval. This is clearly the biggest drawback of the new guidelines, in that the second lien holders will not only get less money they will also have to record their losses on home-equity loans.
Finally, while approving the short sale of a property, the loan servicers would evaluate the ability of the homeowner to pay the difference in the balance of the loan and the current sale price of the home. In cases where a homeowner may be able to pay the difference, or deficiency, Fannie Mae and Freddie Mac will waive the right to follow a deficiency judgment.
Short Sales Will Rise
Although it is too soon to make any projections over the number of homeowners eligible for the new short sale initiatives, there are about 4.6 million borrowers with mortgages backed by the two government servicers. If you find yourself in an underwater home and your circumstances have changed drastically, maybe due to no fault or control of your own, and you just want to know your options please contact one of our Burlington County short sale lawyers to assist you with a better future. We specialize in the short sale process and we will be happy to help you at no up-front cost to you.