It sure seems that they have. Since around March 15th Fannie Mae and Freddie Mac have been tougher about which short sales they will consider. For the most part it looks like they will not consider anyone for a short sale unless they are delinquent or in danger of what they call “imminent default” which they consider: Death (of a borrower) Divorce, or sudden Disability. It’s pretty harsh and unfortunate that they are punishing those who are trying to be responsible and attempt a short sale prior to getting behind on their mortgage or right when they can no longer pay. It’s a classic example of the banks forcing people to go behind just like they did in 2009 with loan modifications.
In 2009 the government and all the banks came out and announced that they wanted to do millions of loan modifications and make mortgage payments more affordable under their new “Making Home Affordable Program.”
Well the big mistake they made is they insisted that borrowers had to be delinquent to be considered. So what did 99% of borrowers do once they were told they had to be delinquent? They stopped paying!
Now it looks like they are doing the same with short sales. In the end it will only create more delinquencies. We find it amazing that Fannie Mae and Freddie Mac are still worried about strategic default through short sales. What they forget is that most borrowers do not want to give up their home and sell it through a short sale. Most everyone would rather keep their home. In fact over 75% of our clients attempted a loan modification prior to calling us for a short sale.
So what does this mean for distressed homeowners?
It means that it will be harder to get your short sale approved if you are trying to be proactive. Instead of being able to prove that you soon won’t be able to afford your mortgage you have to now wait until you actually can’t.
For example, the first case we had seen of this was last fall when we had a client that was not yet behind. She warned the bank in her hardship letter and on the phone that she was going to get behind because she was 8 months pregnant and was going to be out of work AND the tenant that she had in the property was moving out. Fannie Mae would not agree to the short sale. So she stopped paying because she could not afford to anymore as she had warned. Then in February we re-listed the property, got a new offer that was about $10,000 lower than the offer in the fall, and resubmitted for a short sale. At this point she was about 3 to 4 months behind. The short sale got approved with no questions asked and we have since closed it. Fannie Mae lost at least $18,000 more than they had to between months of non-payment and an offer for $10,000 less.
Does that make sense? No! Who did that help? No one! More lost taxpayer dollars because they are worried about strategic default! Don’t get us wrong Fannie Mae and Freddie still would rather do short sales than foreclosures. And they have made many changes over the last 3 years that have made short sales easier but this new change is not a smart one.