Homeowners of underwater properties have a reason to rejoice
thanks to the introduction of new guidelines from the two
government-sponsored enterprises (GSEs) -
). On Tuesday, the Federal Housing Finance Agency (FHFA) - the
regulator for these two GSEs - announced a number of guidelines
that are expected to make short sale simpler and easier. With the
implementation of the guidelines effective November 1, short sale
of properties would speed up.
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The new measures announced by FHFA will have to be followed by
mortgage servicers. These will consolidate the current short sale
programs into one streamlined program and enable lenders and
servicers to promptly and easily get eligible borrowers for short
As part of the new set of rules, property owners with mortgages
from either of these two GSEs will be able to short sale their
homes despite making timely payments of interest and principal if
they have an eligible hardship (death of a borrower or co-borrower,
divorce, disability or relocation for a job). The servicers will be
able to allow short sales without any additional permission from
Moreover, both GSEs will be lowering the number of documents
required to complete a short sale, thereby aiding those homeowners
who are in danger of foreclosure. Further, it would also improve
the efficiency of the servicers in completing a short sale.
In addition, the servicers will make guidelines clearer and more
uniform, leading to faster processing and execution of short sales.
Further, the GSEs will offer a maximum of $6,000 to the holders of
the second liens (once the short sale is complete), so that
mortgage holders do not haggle over the proceeds of the sale.
Moreover, while approving the short sale of property, servicers
would evaluate the ability of the homeowner to pay the difference
between the balance loan amount and the current sale price of the
home. In cases where the property owner has the ability to pay the
differential amount, the GSEs will waive off the right to follow
Though the FHFA did not provide any projections related to the
number of homeowners eligible for the new short sale initiative,
there are about 4.6 million borrowers with mortgages backed by
GSEs. Out of these, approximately 80% have not missed any loan
The new short sale guidelines are a part of the FHFA's Servicing
Alignment Initiative that is expected to simplify the GSEs plan for
short sales and other modes to prevent foreclosures. In framing the
new streamlined short sale process, the FHFA and the GSEs worked in
collaboration with the National Association of Realtors (NAR). The
NAR believes that improving the short sale procedure would help
homeowners avert foreclosures and also stabilize the value of
residential property going forward.
However, one of the biggest fall-outs of the additional short sales
is expected to be for those banks that have provided second
mortgages to the borrowers. They will have to record losses on
home-equity loans. Some of the major providers of second liens
include Wall Street biggies -
JPMorgan Chase & Co.
Bank of America Corporation
Wells Fargo & Company
Nevertheless, the new short sale process is also expected to be in
the larger interest of the overall housing sector and economy. In
addition, the real estate agents and home owners planning to sell
their property would also benefit from this simplified process.