Because delays in approving short sales have caused many homeowners to go into foreclosure, a federal agency has recently streamlined the short sale process for Fannie Mae and Freddie Mac loans. This means that if you have a Fannie Mae or Freddie Mac loan, you have a better chance of getting a short sale approved before your home goes into foreclosure.
(To learn more about short sales work, see Nolo's Short Sales topic area.)
How Can Streamlined Short Sales Help Avoid Foreclosure?
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. In many cases, short sales fail because the loan servicer takes a long time to decide whether or not to accept the deal. Sellers and buyers often get frustrated and choose to give up on the process. As a result, a home may be foreclosed upon even though there was a possible short sale in the works.
To enable loan servicers to more rapidly qualify eligible borrowers for a short sale, the Federal Housing Finance Agency (FHFA) recently directed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to streamline the short sale process so that homeowners whose loans are backed by these enterprises can avoid foreclosure.
New Fannie Mae and Freddie Mac Short Sale Guidelines
As of June 2012, servicers must abide by strict timelines when considering a short sale offer. Under these guidelines, the mortgage servicer must:
- review and respond to the short sale request within 30 calendar days from receipt of the complete short sale application
- provide the borrower with weekly updates if the short sale application is still under review after 30 days, and
- make a final decision to accept or deny the short sale, and notify the borrower of such decision, within 60 calendar days after receipt of the complete loss mitigation package.
Moreover, additional guidelines go into effect November 1, 2012, which include:
- Providing a streamlined short sale program for those borrowers who are most in need, namely, those borrowers who have missed several mortgage payments, have low credit scores, and are facing serious financial hardships. In these cases, the documentation required to show need will be reduced or eliminated.
- Allowing servicers to qualify borrowers for short sales even if they are current on their payments if they have a hardship such as death, divorce, disability, or distant employment transfer or relocation (more than 50 miles).
- Fannie Mae and Freddie Mac will waive the right to pursue a deficiency judgment if the borrower can provide a financial contribution or agrees to sign a promissory note when the borrower has sufficient income or assets. Servicers are required to assess a borrower’s ability to cover the difference between the outstanding loan balance and the short sale price as part of the process. (Learn more about deficiency judgments.)
- Providing special consideration to military personnel with Permanent Change of Station (PCS) orders. Servicemembers who are subject to PCS orders will be automatically eligible for short sales, even if they are current on mortgage payments. Additionally, they will not be required to contribute funds to cover the deficiency.
- Consolidating existing short sales programs into a single program that has ”clear and consistent guidelines” for the short sale process.
- If a foreclosure is pending, loan servicers and borrowers will receive clear instructions about when borrowers must submit their short sale application to be eligible for short sale consideration.
- Offering up to $6,000 to second lien holders to expedite a short sale and prevent second lien holders from hindering the process by holding out for higher amounts.
One thing to keep in mind is that if you complete a short sale under this process, you will not be eligible for a new mortgage backed by Fannie Mae or Freddie Mac for at least two years after the short sale.
Qualifying for a Streamlined Short Sale
The new guidelines apply only to loans backed by Fannie Mae and Freddie Mac. To determine if either Fannie Mae or Freddie Mac owns your loan, go to www.fanniemae.com/loanlookup (or call 1-800-7Fannie) or www.freddiemac.com/mymortgage (or call 1-800-Freddie). Military servicemembers can check the Fannie Mae or Freddie Mac websites or can call the hotline for military homeowners at 1-877-MIL-4566 or 1-800-Freddie.