Members of the military who receive orders to relocate will now be able to do a short sale on their homes even if they are current on their mortgages.
Back in April of 2012 we reported Fannie Mae and Freddie Mac changed their short sale qualification rules. In most cases they would not consider a homeowner for a short sale unless they are delinquent or in danger of what they call “imminent default,” i.e., death (of a borrower) divorce, or sudden disability. Orders to relocate for homeowners in the military will now be considered a qualification for short sale approval.
In a press conference in June of 2012, FHFA acting director, Edward J. DeMarco, announced changes to short sale policies for military homeowners whose mortgages are owned by either Fannie Mae or Freddie Mac. In October of 2011, the FHFA introduced updates to servicing guidelines to include PCS orders as a hardship in order to qualify for a loan modification or forbearance.
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.
This change means Fannie Mae and Freddie Mac will not pursue a deficiency judgment, cash contribution, or promissory note from members of the military with a change in duty station for any property purchased on or before June 30, 2012. Service members must have a Fannie Mae or Freddie Mac loan to be eligible.
“These Fannie Mae and Freddie Mac policy changes, in combination with related guidance last fall, should now provide military homeowners with access to the immediate and automatic full range of foreclosure alternatives,” DeMarco said in the release.
Orders to Relocate Can Lead to Financial Hardship
When members of the military receive PCS orders, they have to sell their home quickly. But in a difficult housing market, this isn’t always easy. Their home may have lost value and even if they can sell it they often don’t have the cash to pay the remainder they owe of the mortgage, known as the deficiency balance.
If they can’t sell the home, they must continue paying the mortgage in addition to whatever monthly rent they must pay for an apartment in their new location. Financially this can be devastating to a family.
Prior to this policy change, many service members felt their only option was either to pay the mortgage plus the rent on two different residences or to default on their mortgage.
In order to prevent service members from defaulting on their mortgage and creating financial and legal hardship for themselves, the regulators of Fannie Mae and Freddie Mac called for PCS orders to qualify as a hardship in order for military homeowners to do a short sale of their home.
What the New Guidelines Mean for Homeowners in the Military
These guidelines address concerns about practices that may mislead homeowners who have received PCS orders. For instance, when servicers advise homeowners to intentionally skip mortgage payments in order to qualify for foreclosure prevention programs such as a short sale, or fail to provide homeowners with clear information about available assistance programs.
The new guidelines will require mortgage servicers to provide accurate, readily understandable information about the options available for homeowners in the military in a timely manner.
Homeowners in the military who receive PCS orders will now automatically be approved to do a short sale on their home even if they are current on their mortgage, and they will not have to pay the balance owed on the mortgage.
To find out if your mortgage loan is owned by Fannie Mae or Freddie Mac, visit Fannie Mae LoanLookup or Freddie Mac Loan Lookup, or call hotlines for military homeowners at 1-877-MIL-4566 or 1-800-FREDDIE.Do You Qualify?