URGENT: FHFA Announces New Fannie/Freddie Short Sale Guidelines

The Federal Housing Financial Administration (FHFA) has just announced that it will align guidelines for Fannie Mae and Freddie Mac short sales and allow lenders and servicers to quickly and more easily qualify borrowers for a short sale.  Real estate professionals and associations have long advocated for a streamlined, standardized short sale process, and some of the changes below address some of the main concerns involving these transactions.

Effective November 1, 2012, the primary changes are as follows:

  • Eliminates current Fannie Mae and Freddie Mac short sale programs and creates a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).
  • Enables servicers to quickly and easily qualify certain borrowers for short sales who are current on their mortgages without waiting for an approval from Fannie Mae or Freddie Mac Offers special treatment for military personnel with Permanent Change of Station (PCS) orders.
  • Standardizes and clarifies foreclosure suspensions on a property with an approved short sale.
  • May pay borrowers up to $3,000 in relocation assistance.
  • Fannie Mae and Freddie Mac will offer up to $6,000 to subordinate lien holders to expedite a short sale.

FHFA also clarified that a borrower experiencing a hardship must wait at least two years following a short sale before becoming eligible for a new Fannie Mae or Freddie Mac loan.

It is hoped that these new guidelines will improve short sales eligibility for those troubled homeowners trying to avoid a foreclosure so they can move on with their lives.  Of course, only time will tell….

See Fannie Mae’s press release regarding the new short sale guidelines:  http://www.fanniemae.com/portal/about-us/media/corporate-news/2012/5814.html

For a copy of Freddie Mac’s Servicer Bulletin go to: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1216.pdf

URGENT: New Fannie/Freddie Short Sale Guidelines Take Effect June 15, 2012

Fannie Mae and Freddie Mac have announced aggressive new guidelines applicable to short sales involving FM loans.  The intention, as with most of the recent changes in federal “distressed property” programs, is to streamline the short sale process.  Many experts, this writer included, harbor serious doubts whether the guidelines can be achieved.

Chief among the new guidelines, effective June 15, 2012, is the requirement that servicers review and respond to short sale offers or requests within 30 days.  Servicers requiring more than 30 days must transmit weekly updates to the borrower/seller, and in all cases provide a final response within 60 days.  For HAFA short sales, the clock starts ticking once the borrower has presented a complete short sale approval package.  Requests for pre-approval of short sales also must be completed within the new time frames.

As one who has been tracking short sales since 2007, I frankly question whether these new deadlines can — and will — be met.  Certainly, I have observed situations where short sales are processed start-to-finish in 2 months or less; however, these are far and away the exception than the rule.  More typically, the short sale process from submission of the borrower’s package to issuance of approval by the servicer is 3-4 months or longer.  And indeed the timeline can be extended significantly where short sale approval must be issued by more than one lender/servicer.

The new guidelines provide financial incentives to servicers that complete short sales within the new FM timeline.  In addition, banks servicing Fannie loans risk fines and other penalties if they fail to follow the guidelines.  However, from what I’ve been able to determine, these penalties represent a proverbial “slap on the wrist.”  Only time will tell whether servicers that have to date have dragged their feet in processing short sales will now suddenly “snap to” and provide the timely review and approvals that have left far too many borrowers hanging.  Hope springs eternal….

Here is a link to a complete copy of the Servicer Guide Announcement:  https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1207.pdf



Important HAFA Program Changes Announced

The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option.  The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately.  They include:

  • There are no longer any occupancy requirements for HAFA eligibility.
    Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months.
  • The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
  • Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
  • Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
  • Credit bureau reporting of HAFA transactions are amended as follows:
    • If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified:  Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
  • The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners.  Certainly, the increase in the amount of gross proceeds available to settle junior liens should help.  This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions.  Of course, as with all previous program changes, the proof will be in the pudding.  Stay tuned….

HAFA: Hope or another hoax?

Like many professionals in the distressed property arena, I was genuinely excited with the federal government’s roll out last year of the HAFA short sale program.  Since the real estate meltdown began in 2007, those of us advising potential short sale candidates experienced growing frustration with the interminable delays of most lenders in processing “traditional” short sale requests.  Too often, those delays translated into lost
buyers, understandably unwilling to “hang in there” indefinitely while overwhelmed lenders dithered.

The HAFA program’s structure seemed clearly directed at this core program.  By putting the lender approval process at the front of end of the short sale process, sellers and their agents would be able to market properties as “pre-approved,” thus creating transparency and predictability for interested buyers.  And in fact, initial experience with the program seemed to warrant guarded optimism that we were finally on the road to smoother processing of the growing number of short sale transactions.  More recent experience raises serious questions whether that optimism was misplaced.

On one hand, the Department of Treasury’s internal statistics through April 2011 purport to show that roughly 46% of HAFA Agreements started resulted in closed transactions.  My own experience belies this rosy picture.  We know that currently roughly 70,000 HAFA transactions are in some stage of processing. What these numbers and the DOT’s statistics don’t reflect is the number of HAFA applicants whose applications have been rejected for reasons wholly unrelated to their program eligibility.

Several of my clients have been told by lender representatives that the lender does not participate in HAFA, even though the lender is listed on the DOT’s approval lender list.  Other clients have been summarily dismissed from HAFA following submission of required paperwork because program time deadlines were not met, even though the failure to meet those deadlines resulted from the lender’s own processing delays.  Yet other lenders have outsourced HAFA processing to incompetent third party processors.  The horror stories abound.

My concern is that, like the once ballyhooed and now roundly reviled HAMP program, lenders lack the qualified bandwidth to effectively process qualified HAFA applications.  And with the frequent and multiple revisions to program eligibility guidelines, it’s not surprising many lenders simply don’t know if an applicant is qualified.  The trend seems to be to simply reject the applicant, hope they don’t push back, and instead opt for HAFA’s far less beneficial deed-in-lieu program or simply walk away.  Ultimately, and once again, it is the distressed homeowner who gets the shaft.

Hardly the hopeful we had once envisioned.  Stay tuned.