The Federal Housing Finance Agency (FHFA) announced today that Freddie Mac and Fannie Mae (the GSEs) 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. 

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.  

Additional changes will make it easier for servicers to process short sales for members of the military who must relocate due to Permanent Change of Station orders.  In these cases servicers can streamline the process including the elimination of back-end debt-to-income ratios and removes the obligation for borrowers to contribute funds to cover the shortfall between the sales price and their outstanding mortgage balance.

FHFA said that the new guidelines will move short sales forward expeditiously for borrowers who have missed several mortgage payments, have low credit scores and serious financial hardships because the documentation required to demonstrate need has been reduced or eliminated.

Servicers will also be able to process short sales for borrowers who are current on their mortgages but are facing sudden hardships such as death, divorce, disability, or relocation of more than 50 miles for reasons of employment.  Servicers will be allowed to approve short sales in such circumstances without additional approval from Freddie Mac or Fannie Mae.

The two GSEs will waive the right to pursue a deficiency judgment in exchange for the borrower making a financial contribution to the remaining principal balance or signing a promissory note to that effect if that borrower has the capacity to do so. 

The changes will consolidate the existing short sales programs of the GSEs into a single uniform program and provide both servicers and borrowers clarity on processing requirements when a foreclosure sale is pending.