New short sale guidelines from the FHFA aim to streamline the process for underwater borrowers.

By Peter Ricci

Shadow housing inventory and government-held REO inventory have both been on a steady decline the last couple years, and if new short sale guidelines from the Federal Housing Finance Agency (FHFA) fulfill their aims, they’re a good chance those inventories could fall even further – and bring us that much closer to a real estate recovery.

As we’ve written before, short sales are not the easiest of processes in real estate, so the FHFA’s short sale guidelines are very much geared towards streamlining and simplifying the process for underwater homeowners – while throwing in a couple radical changes.

FHFA Short Sale Guidelines – Standardized System

According to the FHFA, the new short sale guidelines will cover mortgage servicers for Fannie Mae and Freddie Mac mortgages, and it will align existing short sale programs into one standardized program.

• The new short sale guidelines take effect November 1 of this year, and probably the biggest modification is that homeowners with Fannie/Freddie mortgages can now enter into a short sale even if they’re current on their mortgage.
• As Fannie explained in an additional press release, that privilege will be available for homeowners with certain hardships, including: “death of a borrower or co-borrower, divorce or legal separation, illness or disability or a distant employment transfer.”
• In addition, short sales will now require less documentation; for instance, seriously delinquent borrowers with credit scores lower than 620 will no longer have to provide documentation of their hardship.
• Also, the new short sale guidelines will allow special treatment for military personnel with Permanent Change of Station status, and when relocated, those service members will be automatically eligible for a short sale.

Fading Presence on the U.S. Mortgage Markets

When the government allowed non-conforming loan limits on Fannie Mae and Freddie Mac mortgages to fall last year, its reasoning was clear – reducing the government’s footprint in the housing market; it comes as no surprise, then, that Fannie is taking steps to reduce its mortgage presence, including raising credit score and qualification requirements on its loans. So, with expectations for these new short sale guidelines running high, it looks like this will be just one more step to reducing that post-boom presence.