NEW YORK (TheStreet) -- Borrowers, servicers and real estate professionals may have an easier time doing short sales starting Thursday, with new servicer guidelines from Fannie Mae (FNMA) and Freddie Mac (FMCC) going into effect.
In a short sale, borrowers with underwater mortgages sell their homes to a buyer at a price that is approved by the lender. The lender normally forgives the difference between the loan and the sale proceeds- in essence, the bank is being shorted for the loan amount.
Under the new guidelines, borrowers with loans backed by the GSEs can do a short sale even if they are current on their payments if they have a "hardship" such as the death or disability of a co-borrower, illness, divorce or legal separation or distant transfer of employment.
Military personnel who are being transferred will be automatically eligible for short sales.Homeowners can make a financial contribution at the closing of the sale to prevent the lender from pursuing the deficiency from the borrower later. Military personnel are under no obligation to contribute funds to cover the shortfall between the loan balance and the proceeds. Servicers are required to respond to short sales within 30 days of receipt of the offer and communicate a final decision in 60 days. Also, Fannie Mae and Freddie Mac on Wednesday entered into delegation agreements with nine mortgage insurers that will allow the agencies to approve short sales and deeds in lieu of foreclosure on behalf of the insurance companies. The agreements are expected to reduce the "potential costs, delay and uncertainty" involved in short sale process, the companies said. Banks have increasingly shown a preference for short sales over foreclosures as a way of dealing with delinquent loans. Long foreclosure timelines, particularly in states where there is a judicial foreclosure process, has been one reason. The national mortgage settlement with the biggest servicers this year also requires banks to pursue foreclosure alternatives. According to the Settlement Monitor report, between March 1 and June 30, Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and Ally Financial processed short sales worth $8.6 billion, with Bank of America accounting for the lion's share of the amount at $4.8 billion. --Written by Shanthi Bharatwaj in New York
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