Pending mortgage-servicing requirements that will consolidate and coordinate existing short sale programs into a single standard program could be beneficial to consumers and mortgage lenders but raise important questions, including for credit unions. The Federal Housing Finance Agency (FHFA) directives that will be included in Fannie Mae and Freddie Mac requirements are scheduled to take effect on November 1, 2012.
One area of concern is the impact on second lienholders. Under the directives, payments to subordinate lienholders would be paid from the sale proceeds at closing and there would be a full release of liability for the borrower. Allowable payments for all subordinate lienholders involving a particular loan would not exceed $6,000. The servicer would have discretion to divide the subordinate lien payments among the subordinate lienholders. According to the directives, no exceptions will be made to the $6,000 cap. Also, subordinate lienholders may not require contributions from the real estate agent(s) or borrower as a condition for releasing the lien and the borrower from personal liability.
Homeowners with Fannie- or Freddie-held mortgages that are current on their mortgage payments could sell their homes through the short sale process, provided they have an “eligible hardship.” These hardships are listed on “Uniform Borrower Assistance Form” (Form 710) or the “Hardship Documentation Requirements for Foreclosure Prevention Alternatives,” both of which are available at www.eFannieMae.com.
The FHFA release said mortgage servicers may expedite the short sale process for mortgage holders whose spouse or home co-owner has died. Divorce, disability, and job relocations of 50 miles or more will also be considered eligible hardships. Additional approval from Fannie Mae or Freddie Mac will not be needed in these cases. Military personnel who are being relocated due to Permanent Change of Station orders would also be automatically eligible for short sales, and would not be obligated to contribute funds to cover the shortfall between the outstanding loan balance and the sales price on their homes, under the new guidelines, the FHFA said.
The directives also streamline the short sale process for homeowners that have missed several mortgage payments or have low credit scores. In addition, the directives will clarify when applications and sales offers must be submitted for a home sale to be considered a short sale.