In an effort to stem losses from foreclosures, Fannie Mae and Freddie Mac have just announced a policy change addressing short sales. CAI National released the following update outlining these changes.
“Fannie Mae and Freddie Mac have announced changes to short sale policies to help more borrowers avoid foreclosure and stabilize neighborhoods. Mortgage servicing companies will begin using the new short sale procedures in early November.
A short sale allows a homeowner to sell their home for an amount less than the value of the existing mortgage. While Fannie Mae and Freddie Mac incur losses in a short sale, these losses are significantly lower than the costs of foreclosure. As a result, the short sale is quickly becoming a preferred foreclosure alternative for both Fannie Mae and Freddie Mac.
The new guidelines permit Fannie Mae and Freddie Mac to offer a streamlined process to qualify and approve short sales where the borrower has missed several mortgage payments. The streamlined plan will also reduce or eliminate documentation burdens for borrowers with low credit scores or who face serious financial hardship.
In an important change of policy, Fannie Mae and Freddie Mac will now allow mortgage servicers to qualify borrowers who are current on their mortgage for a short sale without receiving approval from the companies. These borrowers must demonstrate some financial hardship such as a death in the family, divorce, disability, or employment transfer.
Borrowers who are current on their mortgage may be responsible for any amount of the mortgage not satisfied by the proceeds of the short sale. These borrowers will be required to make a cash contribution to the sale or sign a promissory note to reduce Fannie Mae and Freddie Mac losses. When a borrower makes a cash contribution or signs a promissory note Fannie Mae and Freddie Mac will waive their right to collect any outstanding amount of the existing mortgage.
To protect our military families, all military personnel subject to a Permanent Change of Station order are immediately eligible for a Fannie Mae or Freddie Mac short sale. Importantly, Fannie Mae and Freddie Mac will not seek recovery of any difference between the sales price of the home and the payoff balance of the existing mortgage.
Community associations should be aware of these sweeping changes to Fannie Mae and Freddie Mac short sale requirements. Both companies have established a maximum aggregate payment of $6,000 per short sale to satisfy any subordinate lien on the property. This could include any association lien for non- payment of assessments or other amounts due.
Any subordinate lien holder may object to the distribution plan for the $6,000 that is proposed by the mortgage servicer. By objecting, the lien holder can prevent the proposed short sale transaction from moving forward.
CAI has initiated a dialogue with Fannie Mae and Freddie Mac regarding the impact of this policy on community associations. Additional information on the rights and responsibilities of associations involved in a Fannie Mae or Freddie Mac short sale transaction will be provided regularly as these discussions continue.
To read the Federal Housing Finance Agency’s announcement on the new Fannie Mae and Freddie Mac short sale policy, click here."