(MoneyWatch) The Federal Housing Finance Agency on Tuesday announced new, clearer guidelines to help mortgage servicers speed up "short sales" of homes.
The measures come as part of a broader FHFA effort aimed at streamlining Fannie Mae and Freddie Mac programs for short sales and other foreclosure alternatives. The agency oversees the two government-sponsored enterprises.
"These new guidelines demonstrate FHFA's and Fannie Mae's and Freddie Mac's commitment to enhancing and streamlining processes to avoid foreclosure and stabilize communities," FHFA acting director Edward J. DeMarco said in a statement. "The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job."
In theory, the guidelines will enable lenders to more quickly and easily qualify eligible borrowers for a short sale, which is when a homeowner sells a home for less than what is owed on the mortgage (The mortgage lender must agree to forgive the difference and accept less than the amount owed.)
The guidelines also will allow homeowners with Fannie or Freddie mortgages to sell their homes in a short sale even if they are current on their mortgage, provided they have an eligible hardship.
Lenders will be able to accelerate the processing of a short sale for homeowners with hardships, such as the death of a borrower or co-borrower, divorce, disability or relocation for a job, without any additional approval from Fannie or Freddie.
In addition to the streamlined approach for current borrowers with pressing hardships, the new FHFA guidelines also include:
A streamlined short sale approach for the most distressed borrowers. The documentation required to demonstrate need has been reduced or eliminated in order to expedite short sales for borrowers who have missed several mortgage payments, have low credit scores and are in serious financial distress.
Special treatment for military personnel with "permanent change of station" orders. Service members who are being relocated will be automatically eligible for short sales even if they are current on their existing mortgages. They also will be under no obligation to contribute funds to cover the difference between the outstanding loan balance and the sale price of the home.
Consolidation of existing short sale programs into a single program. Loan servicers will have more consistent guidelines, which should make it easier to process short sales.
Guidance on processing a short sale when a foreclosure sale is pending. The guidelines will clarify when a borrower must submit their application and a sales offer to be considered for a short sale, in the hope that last-minute negotiations and communications are handled fairly.
Incentives to second-lien holders. Fannie and Freddie will offer up to $6,000 to second-lien holders to expedite a short sale. Previously, second-lien holders could slow down the short-sale process by negotiating for higher bids.
According to the new guidelines, servicers will evaluate homeowners' financial capacity to cover the difference between the outstanding loan balance and the home sale price as part of approving the short sale. Fannie and Freddie will waive the right to pursue legal judgments against homeowners who sell their home in a short sale and have sufficient income or assets to make cash contributions toward the difference, or sign a promissory note.
FHFA announced guidelines in June that established strict guidelines for lenders considering short sales. Accordingly, servicers are required to review and respond to short sales within 30 days of receipt of a short-sale offer. They must provide weekly status updates to the borrower if the offer is still under review after 30 days, communicate and make the final decision to the borrower within 60 days of receipt of the offer, and complete a borrower response package.
If you feel that you were wrongly foreclosed on or received a foreclosure notice in error, go to IndependentForeclosureReview.com. If you're a homeowner and have questions about whether you qualify for a loan modification or refinancing under HARP 2.0, contact the Homeowner's HOPE hotline at 1-888-995-HOPE or go to MakingHomeAffordable.gov.