The Trusted Adviser
November 2012 | Volume 5 · Number 8

Real Estate and Title Insurance News

Effective November 1, 2012:

New Standard Short Sale Guidelines for Fannie Mae and Freddie Mac

by Karen G. Courtney, Managing Attorney, ATG Short Sale Coordination

Karen Courtney photo

On August 21, 2012, the Federal Housing Finance Agency (FHFA) announced that Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") would implement new short sale guidelines for servicers. These guidelines are part of the FHFA’s Servicing Alignment Initiative to align and consolidate existing short sale programs into one standard short sale program known as the “Standard Short Sale/HAFA II Short Sale” (Standard Short Sale).1 The Standard Short Sale guidelines, which went into effect as of November 1, 2012, provide servicers of Fannie Mae and Freddie Mac loans more clear and uniform guidelines designed to enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.2 Some highlights of the Standard Short Sale guidelines include the following:

  • Borrowers who are current or less than 31 days delinquent on mortgages owned or guaranteed by Fannie Mae or Freddie Mac may be considered for a short sale if they can demonstrate an eligible hardship and meet other imminent default requirements described in the Standard Short Sale guidelines.3 Lenders and servicers are authorized to expedite processing of short sales for homeowners with hardships such as death of a borrower or co-borrower, divorce, long-term or permanent illness or disability of a borrower or co-borrower or dependent family member, or distant employment transfer/relocation more than 50 miles one-way from borrower’s current primary residence, without additional approval from Fannie Mae or Freddie Mac.4
  • Borrowers who have missed several mortgage payments and have low credit scores are now offered a streamlined short sale approach, and documentation required to demonstrate need has been reduced or eliminated.5
  • Lenders and servicers may offer a maximum payment of $6,000.00 in aggregate to subordinate lien holders in order to facilitate the transaction, to be paid from the sales proceeds at closing, in exchange for a lien release and full release of liability for the borrower.6 This maximum subordinate lien payment requirement is designed to address delays and other issues caused by subordinate lien holders in transactions otherwise approved by Fannie Mae or Freddie Mac.
  • Lenders and servicers must not request cash contributions and/or promissory notes where applicable law prohibits a borrower contribution or if a borrower qualifies for Streamline Documentation or is an active duty military service member of the U.S. armed forces with PCS orders relocating the service member from the primary residence purchased by the borrower on or before June 30, 2012.7 For all other borrowers, Fannie Mae and Freddie Mac will waive the right to pursue the deficiency balance on the note in exchange for a financial contribution when a borrower has sufficient income or assets to make a cash contribution or sign a promissory note.8

To learn more about the new Fannie Mae and Freddie Mac Standard Short Sale guidelines, please use the following links:

NOTES

1. See Federal Housing Finance Agency News Release, August 21, 2012.

2. See id.

3. See Fannie Mae Servicing Guide Announcement SVC-2012-19 Standard Short Sale/HAFA II and Deed-in-Lieu of Foreclosure Requirements, August 22, 2012.

4. See Federal Housing Finance Agency News Release, August 21, 2012; see also Fannie Mae Servicing Guide Announcement SVC-2012-19 Standard Short Sale/HAFA II and Deed-in-Lieu of Foreclosure Requirements, August 22, 2012.

5. See Federal Housing Finance Agency News Release, August 21, 2012.

6. See Fannie Mae Servicing Guide Announcement SVC-2012-19, Standard Short Sale/HAFA II and Deed-in-Lieu Foreclosure Requirements (page 11) August 22, 2012.

7. See id.; see also Federal Housing Finance Agency News Release, August 21, 2012.

8. See Federal Housing Finance Agency News Release, August 21, 2012.

[Last Update: 11-13-12]

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