New Guidelines to Make Short Sale Approval Easier

For the 2nd time this year, Fannie Mae and Freddie Mac will issue more guidelines to make short sale approval easier for eligible borrowers.  Back in June, Fannie Mae issued guidelines to speed up the process, but these new guidelines (effective November 1st, 2012) are aimed at overcoming some of the obstacles that borrowers face throughout the process.

One of the major problems in the current short sale process is the amount of documentation required.  The new guidelines aim to reduce that burden by eliminating the requirement that borrowers document their hardship – if the borrower is 90 days or more in default and has a credit score of less than 620.

Another provision would involve deficiency judgments; the new guidelines say that Fannie and Freddie will waive the right to pursue a deficiency judgment on approved short sales.  If the borrower has “sufficient income” or assets, the borrower may be required to contribute cash at closing or sign a promissory note.

To address junior liens (i.e, second mortgages), Fannie and Freddie will now allow up to $6,000 to go to those lienholders.

Another significant change is that in the case of certain hardships, the borrower will not necessarily be required to be in default in order to qualify for the short sale.  Such hardships would be the death of a borrower or co-borrower, divorce or separation, illness or disability, or a distant job transfer.

It will be interesting to see how much good this actually does.  In the Asheville, North Carolina area, a good percentage of our short sale transactions involve vacation homes and investment properties.  Typically, 2nd homes do not fall under the same guidelines for primary residence short sales.  Of course, this is where having an attorney involved really pays off.  But it definitely shows that the government’s attitude toward short sales is changing for the better.  According to Leslie Peeler, SVP, National Servicing Organization, Fannie Mae:
“Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities.  We want to help as many homeowners avoid foreclosure as possible. It is vital that servicers, junior lien holders and mortgage insurers step up to the plate with us.”
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