from my friend Rob Chrisman (www.robchrisman.com) – Freddie and Fannie (and the FHFA, of course) announced short sale changes scheduled for later this year. Starting November 1, measures will be put in place to make short sales of underwater homes easier for homeowners, including extending help to people who have financial difficulties but haven’t missed mortgage payments. F&F are revising their short sale guidelines and delegating authority to their mortgage servicers to approve short sales as of November 1. The new procedures are part of the Servicing Alignment Initiative which the Federal Housing Finance Agency has directed the GSEs to develop. It is hoped that the streamlined program rules will enable lenders and servicers to quickly and easily qualify borrowers, who do not have to be delinquent on their mortgages, to qualify for short sales. As a further step to facilitate speedy sales, both of the GSEs have authorized a payment of up to $6,000 to incentivize second lien holders to allow the short sales to proceed. (Here is Freddie’s bulletin, for example.)
Every lender and Realtor out there knows that short sales can drag on for months, although they are not as difficult or lengthy as they were in previous years. This is in part due to a short sale needing both the holders of first and second mortgages, such as home-equity loans if they exist, must sign off on the deal because they are accepting less than the outstanding mortgage balance. Short sales typically sell for a 10% discount to ordinary homes, compared with a 30% discount for foreclosures, said Sam Khater of CoreLogic Inc. One part of the plan is for Fannie and Freddie to place a $6,000 cap (will it be enough?) on the amount of money holders of second mortgages can receive when the sale is completed, as a way to prevent the mortgage holders from haggling over their slice of the home-sale proceeds. Those second-lien holders would still be able to reject the sales if they saw fit.
Let’s take a quick look at some related numbers. About 4.6 million borrowers with loans backed by Fannie or Freddie are underwater, with 80% of those homeowners having missed no mortgage payments. The biggest holders of second mortgages in the U.S. are Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup. Short sales have been growing as a percentage of home sales. They made up 8.8% of home sales in May, up from 7.6% a year earlier and 6.5% in 2010, according to CoreLogic Inc.
“The National Association of Realtors applauds the Federal Housing Finance Agency for working with Fannie Mae and Freddie Mac to issue new guidelines that expand eligibility criteria and streamline the short sale process. The new guidelines would offer a more streamlined short sale approach for homeowners most in need, as well as enable lenders to quickly and easily qualify certain homeowners for a short sale who are current on their mortgage payments, yet suffer from specific hardships such as job relocation, increase in housing expenses, unemployment and disability. The FHFA guidelines will also consolidate existing short sales programs into a single uniform process and provide lenders and homeowners clarity on processing a short sale when a foreclosure sale is pending.”