MANY homeowners are still left with a mortgage balance that worth more than the value of the property. With the economy still being badly affected by the possibility of a fiscal cliff and the European crisis. A lot of homeowners are still uncertain with their homes or properties underwater.
Fannie Mae and Freddie Mac’s new short-sale reform policies might be your answer. Here’s what’s involved. Starting Nov. 1, owners whose loans have been purchased or guaranteed by Fannie or Freddie may qualify for a short sale if they fit key hardship criteria including: unemployment; divorce; long-term disability; a change in job location that is more than 50 miles from the current home; a business failure; death of the primary or secondary wage earner; or a natural or man-made disaster.
Brief history of Fannie Mae
Fannie Mae and Freddie Mac are two mortgage giants that own almost 3 out of every 4 mortgages in the United States. Fannie Mae soared to record profits before the great mortgage meltdown of 2007. Fannie Mae was placed into government conservatorship in September 2008, under the Federal Housing Finance Agency.
According to CNNMoney.com’s Bailout Tracker, Fannie Mae has received more than $200 billion from the Troubled Asset Relief Program (T.A.R.P.) Let’s not even talk about the millions of dollars of bonuses offered to its executives, in return for what some critics call fleecing the American taxpayers.
Short sales allow borrowers and lenders to avoid the crushing costs of foreclosure by bringing in a new purchaser for the house at what is normally a price well below the amount owed to the lender. In a successful sale, the distressed owner receives a write-down of the portion of the principal not covered by the new buyer’s price, meaning the deficiency of the sale will be permanently forgiven by the lender, therefore releasing the homeowners of the remaining balance.
Even if you are current on your mortgage, Fannie and Freddie will allow borrowers who are current on their mortgage payments – not just seriously delinquent, as traditionally has been required – to qualify for short sales, provided they fit the hardship criteria. Borrowers who are considered “most in need,” – that is, they are far behind on payments, have depressed credit scores and are facing financial stress – will be eligible for streamlined processing of short sales, involving reduced documentation and much speedier resolutions than usual.
Current rules that took effect in June, with loan servicers already required to operate on fast timelines for short-sale requests. They are supposed to respond to borrower requests for short sales within 30 days of receipt of an offer by a purchaser, and they must give applicants a final decision within 60 days of receipt of a completed short-sale package.
Short sales use to be drawn out for many months to close. They have also had a high rate of failure and cancellations, when buyers get frustrated and bail out of the transaction after waiting for banks and loan servicers to make decisions and process paperwork. Banks that hold second mortgages or credit lines secured by the house have been another choke point. Under the new Fannie-Freddie rules, second-lien holders will be entitled to a maximum of $6,000 from proceeds of the sale. Which is what mostly second lien holders get nowadays already.
The broadening of short sales to those who are current on their mortgage payments but encountering serious hardships could help huge numbers of underwater homeowners. Analyst still claims that about 4.63 million loans in Fannie and Freddie’s combined portfolios are underwater, and that approximately four-fifths of these are current on payments. This is a staggering number of homeowners that might be flooding the market with distressed inventory, this is what Realtors are worried about and calling “Shadow Inventory.”
Among other key changes in Fannie and Freddie short sales:
-Members of the armed forces who receive permanent change-of-status orders and are underwater will be automatically eligible for short sales, even if they are current on their loan payments.
-In states where Fannie and Freddie have the legal right to pursue “deficiencies” when short-sale proceeds do not pay off the existing debt, they will waive that right and instead ask borrowers who have sufficient assets or income to make “cash contributions” or execute promissory notes to cover part of the shortfall.
What is the difference from doing a short sale now and later, I believe based on the new ruling more Promissory Notes and Cash Contributions will be part of Short Sale Deals, that means the “Debt Relief Act might not be extended. I have doubts and still think that the government will still try and pass the bill the extend the Debt Relief Act due to the still huge amount of homeowners in distressed.
To find out if your loan is owned by Fannie Mae or Freddie Mac, go the “Makinghomeaffordable.gov” and click on Tools and drop down to does Fannie or Freddie own my loan.
A lot of the “pick a payment” loan or those ARM loans back in 2005-07 were probably not Fannie or Freddie, so before you start to head this direction remember to check first. Feel free to call me at your convenience to find out what options you may have if you are on that gray area of hardship.
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Please Call Ken Go of 1st Innovative Finance at (562)697-7028 or write to [email protected] for your home financing, refinancing and Short Sale requirements.