FHFA Streamlines Short Sale Process for Fannie Mae and Freddie Mac

Guidelines take effect Nov. 1.

The new guidelines will allow homeowners with Fannie or Freddie mortgages to pursue a short sale, even if they are current on their mortgage payments, assuming they have an eligible hardship. Hardships include the loss of a co-borrower, divorce, legal separation, illness, disability, increased housing expenses, disaster (natural or man-made), or a distant employment transfer.

Fannie also is cutting down on the amount of documentation required to complete a short sale under hardship circumstances and eliminating certain documentation requirements for borrowers who are 90 days or more delinquent or living with a credit score below 620.

The program also removes barriers created by some subordinate lien holders by limiting subordinate-lien payments to $6,000. This maneuver essentially cuts off any attempts by the second-lien holders to negotiate for larger payoff amounts.

"By setting a standard payout amount and a limit for every transaction, Fannie Mae is removing the guess work and standardizing the transaction to help accelerate the short sale process," Fannie Mae said in a statement.

The FHFA's new guidelines waive deficiencies for borrowers who complete a short sale and gives servicers the authority to approve and complete short sales that conform to the new standards without individual approval from the GSEs.

Borrowers who take part in the program will not be eligible for another mortgage backed by Fannie or Freddie for at least two years after the short sale occurs.

"Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities," said Leslie Peeler, senior vice president, National Servicing Organization, Fannie Mae. "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. These new guidelines will open doors to help more homeowners qualify for short sales, remove barriers to completing short sales, and make the process more efficient for homeowners and servicers."