A recent article on the FANNIE AND FREDDIE short sale procedures and policies along with our take.
For more information on your rights in the Short Sale process, consider contacting a
Seattle Short Sale Specialist.
WASHINGTON -- If you're underwater and facing financial distress, what might Fannie Mae's and Freddie Mac's new short sale-overhaul policies mean for you? Potentially a lot -- even if you are current on your
mortgage payments and never imagined that a short sale and principal reduction could be in the cards.
Here's what's involved: Starting Nov. 1, owners whose loans have been purchased or guaranteed by Fannie or Freddie may qualify for a
short sale if they fit key hardship criteria, including: unemployment; divorce; long-term disability; a change of employment that is more than
50 miles from the current home; a business failure; death of the primary or secondary wage earner; or a natural or man-made disaster.
Our take: in general, I think this is a great policy for fannie and Freddie. To date, many of our clients have been forced to go
delinquent on payments in order to have a short sale approved. With this new policy, hopefully clients that do a hardship
can have a short sale approved without damaging their credit rating as harshly.
Short sales allow borrowers and lenders to avoid the crushing costs of foreclosure by bringing in a new purchaser for the house at what is
normally a price well below the amount owed to the lender. In a successful sale, the distressed owner receives a write-down of the portion of the principal not covered by the new buyer's price.
Our take: a ‘write-down’ is not technically correct. What we aim for is a ‘waiver of deficiency’ so our clients will not owe
money at the conclusion of the short sale. That said, it is NOT AUTOMATIC and must be NEGOTIATED.
In what could be a far-reaching change, Fannie and Freddie will allow borrowers current on their
mortgage payments -- not seriously delinquent as traditionally required -- to qualify for short sales, provided they fit the "hardship" criteria.
Borrowers considered "most in need," that is, they are far behind on payments, have depressed credit scores and are facing financial stress,
will be eligible for streamlined processing of short sales, involving reduced documentation and much speedier resolutions than usual.
Under rules that took effect in June, loan servicers already are required to operate on fast timelines for short-sale requests. They are
supposed to respond to borrower requests for short sales within 30 days of receipt of an offer by a purchaser, and must give applicants
a final decision within 60 days of receipt of a completed short-sale package.
In the past, short sales often have been drawn out and contentious, sometimes taking more than nine months to close. They have also had
a high rate of failure and cancellations, when buyers get frustrated and bail out of the transaction after waiting for banks and loan servicers
to make decisions and process paperwork.
Banks that hold second mortgages or credit lines secured by the house have been another choke point. As lien holders, they can block the
entire transaction if they feel they are not being properly compensated along with the first mortgage holder, and have frequently blown up
deals with their demands. Under the new Fannie-Freddie rules, second lien holders will be entitled to a maximum of $6,000 out of the
proceeds of the sale.
The broadening of short sales to those current on their mortgage payments but encountering serious hardships could help huge numbers of
underwater homeowners. Though the Federal Housing Finance Agency has no estimates of how many borrowers might be assisted by the
change, its acting director, Edward J. DeMarco, has said that 4.63 million loans in Fannie's and Freddie's combined portfolios are underwater,
and that approximately four-fifths of these are current on payments.
She added that the new rules won't solve all the problems, however. For example, banks owed large sums on second mortgages may not
be satisfied with the $6,000 maximum payoff to release their liens, even though they know that in a foreclosure their second liens likely would
be worthless -- the first lien holder must be paid first.
Among other key changes in Fannie and Freddie short sales:
* Members of the armed forces who receive permanent change-of-status orders and are underwater will be automatically eligible for short sales,
even if they are current on their loan payments.
* In states where Fannie and Freddie have the legal right to pursue "deficiencies" when short sale proceeds do not pay off the existing debt, they
will waive that right and instead ask borrowers who have sufficient assets or income to make "cash contributions" or execute promissory notes
to cover part of the shortfall.
To find out whether your loan is owned by Fannie or Freddie, visit either FannieMae.com/loanlookup or FreddieMac.com/corporate.
For more information on your rights in the short sale process, consider contacting a Seattle Short Sale Attorney.
Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425.889.9300
weitzlawfirm.com
