Both Freddie Mac and Fannie Mae will be offering additional consideration to military personnel who may be facing problems with their mortgage due to service related orders. The two GSEs were directed to address mortgage servicer practices that pose risks to home owning service members and to ensure compliance with applicable consumer laws and regulations. The "guidance" came from regulators the Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation and other regulators.
The guidance pertains to risks faced by homeowners who have received Permanent Change of Station (PCS) orders, that is have been ordered by the military to relocate to a new duty station or base. Such orders are received by about one-third of active-duty service members each year.
PCS orders are non-negotiable and carry short, strict timelines. Homeowners with such orders, however, are still obligated to honor their financial obligations including their mortgages. In the current environment, with so many homes underwater, these service members may be unable to sell their homes and obtain sufficient funds to pay off the mortgage debt and may have to continue mortgage payments while making rent or other housing payments in their new location.
Under the new guidelines, receipt of a PCS will be treated as a hardship for the purpose of qualifying for a short-sale even if the homeowner is current on the existing mortgage. Military with PCS who complete a short sale will be exempt from deficiency judgments from Fannie Mae and Freddie Mac and relieved of any request or requirement to contribute cash to the sales proceeds or to sign a promissory note for any outstanding balance as long as the property was purchased on or before June 30, 2012.
In addition to holding PCS order, the homeowner must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac to be eligible for the program. The status of the mortgage can be current or delinquent. Freddie Mac and Fannie Mae were instructed by regulators last year to treat PCS orders as a hardship for purposes of modifications and forbearance.
Paul Mullings, Freddie Mac's Interim Head of Single Family Business and Information Technology said, "Freddie Mac is proud to support this important new effort to help servicemen and women when national duty requires them to sell their homes in an uncertain market. We look forward to working with our servicers on this new short sale policy. Together we can help ease the challenge of relocation for military families when Permanent Change of Station orders are received."
The Federal Housing Finance Agency said it would provide final guidance by September 30 and the short-sale reforms would be effective 60 days later.