The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has released details of a new program to expedite short sales.
The program consolidates Fannie and Freddie’s current short sale programs, including the original Home Affordable Foreclosure Alternative (HAFA) programs and other proprietary ones.
The new streamlined approach will be known as the “Standard Short Sale/HAFA II,” and is designed to make short sales easier for those most in need.
Short Sales for Those Still Making Payments
First and foremost, the new guidelines will allow homeowners with Fannie or Freddie mortgages to pursue a short sale, even if they are current on their mortgage payments, assuming they have an eligible hardship.
At the moment, it’s difficult (but not impossible) to get a short sale going unless you fall behind on your payments, which kind of defeats the purpose of attempting to avoid full-blown foreclosure.
With HAFA II, loan servicers will be able to quickly qualify such borrowers without any additional approval from Fannie or Freddie.
Common hardships listed by the FHFA include unemployment, divorce, long-term disability, increased housing expenses, disaster (natural or man-made), business failure, and death of a borrower or household wage earner.
The streamlined process will also work for those who are transferred to a job or accept a new career opportunity more than 50 miles away.
This should help more borrowers conduct short sales without the massive credit score hits associated with multiple missed mortgage payments.
[Short sale vs. foreclosure with regard to credit]
Fannie and Freddie have also agreed not to pursue a deficiency judgment in exchange for a small financial contribution (assuming the borrower has sufficient income/assets).
It’s unclear how small it may be, but I would venture to say that most homeowners won’t want to pay it.
Service members who are relocated will also be automatically approved for short sales, even if current on their mortgages (and they won’t be subject to paying the contribution).
Quicker Short Sales for Those Already Behind
HAFA II also addresses those who are already behind on their mortgage payments and sailing full steam toward foreclosure.
These borrowers will enjoy an expedited approach to better deal with the time sensitive nature of the foreclosure process.
This means the documentation needed to demonstrate hardship may be reduced or even eliminated in some cases.
To further speed things up, or at least not unnecessarily slow things down, Fannie and Freddie will offer up to $6,000 to second mortgage holders to accelerate the short sales.
At the moment, a secondary lien holder can slow down a short sale by negotiating for a larger chunk of the outstanding balance, effectively stalling the entire process.
So hopefully the $6,000 will be enticing enough to speed along the process in most cases.
The new guidelines will also provide clarity on processing a short sale if a foreclosure sale is pending so borrowers can get last minute offers in and avoid losing their home.
Currently, loan servicers are required to review and respond to short sale offers within 30 days of receiving them.
They must also provide weekly status updates if the short sale is still under review after 30 days, and must finalize decisions within 60 days of the receipt of the offer.
Note: Borrowers who take part in the program will not be eligible for another mortgage backed by Fannie or Freddie for at least two years after the short sale occurs.
The HAFA II program will be effective come November 1, 2012.