Guess Who Is Betting Big On Short Sales? The Government!!

fannie freddie agree with MI on short sale guidelines

fannie freddie agree with MI on short sale guidelines

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!

-JJM

About John Maseredjian

John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals. He is also one of our main contributors on the Gazette, and a licensed real estate agent. (please see his agent page on the main site for more information.)

5 comments

What do you think will happen with short sales once the exemption expires 12/31/2012 that allows(or may allow) the seller of their principle residence to escape paying income tax on the loss?

Jeanne, thanks for the feedback. Given the outcome of the election last week, I can’t see a situation in which the debt forgiveness act isn’t extended. If it isn’t extended it would mean that more homeowners would allow there property to foreclose and just walk away, as it seems the stigma of that is less painful than being on the hook for debt forgiveness. Short sales would still exist but most likely it would be a viable solution for those looking to “strategically” rid themselves of an underwater property, though the may still have the means to carry it.

You are right John, and those that are strategically doing a short sale will have to accept that burden, because it is their choice. But what of those that are not and truly have a hardship?

They shake hands just like they approve short sales. What men shake with left hands. Great article John

Scott, I completely agree, the left hand has no idea what the right hand is doing!

Jeanne, unfortunately they would be out of luck… It’s cold but its the truth. The dream of a modification is comforting but it merely delays the inevitable for most.

Fingers crossed that they extend it, and allow more help to those who need it.

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