Earlier this week, the FHFA (Federal Housing Finance Agency) managed to get a set of new “short sale guidelines” passed by Fannie Mae, Freddie Mac, and the Mortgage Insurers with which they work. While this is great news on the surface, what does it really mean to distressed homeowners?
As of yesterday, November 1st, the new guidelines for short sales of properties/mortgages which are owned by Fannie Mae and Freddie Mac are now in place! Having reached an agreement earlier in the week, this seems to be great news for homeowners who are in distress.
The new guidelines are centered on what has been a very tricky “speed bump” in the short sale process, approval from mortgage insurers (MI).
As we have done over 500 short sales I can say with confidence that MI approval is almost as difficult to obtain as approval from the investor and servicer. Why? Simply because they generally have to pay the difference between the net proceeds from a short sale and the amount that the investor lent. Therefore they take their time in analyzing which scenario will cost them less: pay the difference in a short sale, or the difference from a foreclosure auction.
To make matters worse, MI doesn’t even begin reviewing the proposed short sale until the servicer has finished their review and gave it a green light. Given the time constraints of an impending foreclosure sale date, it is not uncommon to see a house end up on the auction block simply because MI either didn’t have enough time to make a decision or simply didn’t make up their mind in time.
The new guidelines specifically address the issue of MI approval, and are in essence a comparison criterion for servicers. If a short sale (of a property of owned by Fannie Mae or Freddie Mac) fits the criteria, it will be approved by the servicer without even going to the MI company for review.
The only questions that remain are what is the exact criteria that must be followed, and how well can this be implemented/how long to implement?
Don’t get me wrong this is good news and if executed correctly this could potentially shave between two weeks to one month off of the short sale time-frame; which would mean that many of the houses which end up foreclosed on, due to lack of time to review, could be spared that devastating fate.
After all, foreclosure (appropriately called “the F word” around our office), is the worst case scenario for homeowners. If you doubt this please see my article regarding Foreclosure by clicking here!