Acting Director of the Federal Housing Finance Agency (FHFA) Edward J. DeMarco announced new, clear guidelines for short sales. Among the new guidelines is one that will allow homeowners with a Fannie Mae or Freddie Mac mortgage to do a short sale even if they are current on their mortgage if they have an eligible hardship.
Up until now, the FHFA would only allow short sales for homeowners at risk of “imminent default,” (what they consider death of a borrower, divorce, or sudden disability) or had to be delinquent in their payments. As long as a homeowner can document a legitimate hardship, as shown in the list of requirements below, they can be eligible for a short sale even if they have been paying their mortgage on time.
One eligibility requirement that’s been added allows underwater borrowers to do a short sale if they need to relocate more than 50 miles for a job. Another significant change is that they will now include increased home expenses as an eligibility requirement. This is important for homeowners who have to pay more each month because of day care costs, medical expenses, or unexpected home repairs.
Updated Short Sale Eligibility Requirements
- Death of a borrower or death of the primary or secondary wage earner in the household
- Long-term disability
- Distant employment transfer/relocation (more than 50 miles one way)
- Increased housing expenses
- Disaster (natural or man-made)
- Business failure
- Borrowers that need to relocate more than 50 miles one way for a job, including service members with Permanent Change of Station Orders, can be current or delinquent on their mortgage to apply for a short sale.
One new guideline may cause some confusion. It states that 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.”
This does not mean you have to bring cash in order to do a short sale. Most distressed homeowners who need to do a short sale can usually have their deficiency balance waived without having to provide money up front. This guideline is only for borrowers who have the financial capacity to contribute something.
We applaud the FHFA decision to clarify and streamline short sale eligibility requirements. So many homeowners are struggling to pay their mortgage, and many can no longer afford to stay in their home. But up until now, borrowers had to be delinquent in order for them to be considered for a short sale if they didn’t fall under the imminent default rules. This meant these homeowners had to stop paying their mortgage just to be able to sell their home!
With these updated guidelines many more homeowners can now be proactive and do a short sale and avoid foreclosure, as long as they can prove that they cannot afford the home.
Since around March of this year, Fannie Mae and Freddie Mac had tightened their short sale qualification rules, and insisted that borrowers had to either stop paying their mortgages (and become delinquent) or had to be in imminent default in order to be considered for a short sale. But now that has changed.
Short Sale Process Showing Improvement
In June, the FHFA announced shorter timelines for short sales to help expedite the short sale process. Under the new guidelines loan servicers are required to review and respond to requests for short sales within 30 calendar days from receipt of a short sale. They must also communicate final decisions to the borrower within 60 days of the offer. In cases where they can’t offer a decision within 30 days following receipt of a complete borrower response package, they must notify the borrower within the 30 day time limit that it’s still under review.
In June, DeMarco announced a change to short sale policies for military homeowners whose mortgages are owned by either Fannie Mae or Freddie Mac. Under the new guidelines for military homeowners, an order to transfer bases, known as a Permanent Change of Station (PCS), would now be considered a hardship that qualifies for a short-sale approval.
Then in July, DeMarco announced his decision that he would not allow mortgage principal reduction on homes whose values are less than the amount owed. Principal reduction would not be considered, in part, because DeMarco said principal forgiveness is already available through doing short sales and greater efforts were being made to streamline the short sale process, making it an option that respects as he said, “the interests of borrowers, neighbors, and lenders alike.”
This latest announcement is a welcome update to the short sale guidelines and will allow more struggling homeowners avoid foreclosure.
If you are having trouble paying your mortgage, or have been paying your mortgage but find it increasingly difficult to make the payments, thanks to these new guidelines to streamline the short sale process, doing a short sale will be easier than it has ever been.
The guidelines went into effect November 1, 2012.
Do You Qualify?