Beginning November 1 there will be some significant changes to how short sales are handled, and the new guidelines could be a big benefit to those sellers who otherwise may not have been able to short sell their homes. A short sale is when a home is sold for less than the amount owed on the mortgage(s), allowing the borrower to escape some of the harsher ramifications from a foreclosure.
The Federal Housing Finance Agency (FHFA) is changing the Fannie Mae and Freddie Mac short sale guidelines, which will allow borrowers to be qualified by their servicers for short sales in a more timely manner, and will apparently streamline the short sale process, making it smoother and, dare I hope, quicker. How are they planning to do this? Here are the changes that are anticipated:
• A single short sale process will be created for Fannie and Freddie short sale programs. This will allow for smoother and streamlined processing time, which will enable agents and homeowners to determine timeframes for approval and closing. Servicers must respond to short sales within 30 days, with a final decision for the borrower by 60 days after submission.
• Borrowers who are current on their mortgages will be able to qualify for short sales (subject to showing they have a hardship), without waiting for short sale approval from Fannie and Freddie, and instead of waiting until payments are missed, thus eliminating further damage to credit scores and helping to clear short sale inventory much quicker. Most importantly, the guidelines for proving hardship will be loosened.
•Provides special treatment for military personnel who have received permanent change of station (PCS) orders. Personnel who are being relocated will automatically be eligible for short sales, even if they are current on their mortgages.
• May provide up to $3000 in relocation assistance to those borrowers who qualify.
• Allows and standardizes foreclosure suspensions on approved short sale properties. This one is big – it will prevent servicers from foreclosing on your property if your short sale has been approved, so no more worrying during the short sale process that the home will be sold at auction during that time.
• Payment to secondary lien holders by Fannie and Freddie of $6,000. Although this happens frequently already, it will be nice to have a guarantee that Fannie and Freddie will offer these subordinate lien holders money, which makes getting their approval on short sales a bit easier.
The potential downside of these changes is that there may be large supplies of short sale inventory in some areas, which could have a negative effect on area home sale prices, at least until the supply is sold.
The upside to this new process is that it will clear the market of distressed property, which will allow a return to “normal” growth cycles in the future, and instill higher levels of consumer confidence in the markets. It will also be positive news for those home sellers who would have headed toward foreclosure, providing an easier way out from under a mortgage that was literally sinking them.
These new guidelines are a step in the right direction, as we need to clear out this inventory and make the process easier and not so mysterious. The proof will be in the pudding, however, so I am definitely looking forward to November 1, and streamlined short sales. If you have questions about short selling your home, please feel free to contact me.