Topic Summary: Fannie Mae and Freddie Mac will allow underwater borrowers who are current on their mortgage payments to qualify for a short sale, with some fine print attached.

Come November 1st, Fannie Mae and Freddie Mac will OK short sale requests from distressed borrowers even if they the borrower is on time with payments. Historically the homeowner must have been severely delinquent in mortgage payments and lack the credit to refinance out of trouble. With this new policy, underwater homeowners may get approval for a quick response short sale request, saving all parties thousands of dollars in potential costs is the mortgage would go into foreclosure. Less foreclosures save taxpayers money in the end as the government backs up Fannie and Freddie.

First, “101 Terminology”

Underwater Loan:  A home purchase loan with a higher balance than the free-market value of the home. This situation prevents the homeowner from selling the home unless they have cash to pay the loss out of pocket. It also prevents the homeowner from refinancing in most cases.

Short Sale:  A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.

Fannie and Freddie: Fannie Mae, and Freddie Mac, are two mortgage giants that own almost 3 out of every 4 mortgages in the United States.

Primary Lien Holder:  The new relief only applies if your mortgage is owned by Fannie or Freddie Mac. To see if your mortgage is owned by Fannie Mae, click HERE. For Freddie Mac click HERE


The New Criteria

In the past, the homeowner had to be severely behind in their mortgage payments in order to be even considered for a short sale approval. Next, the delays in getting short sale approval caused many potential buyers to walk away. Paperwork needed in the process always took longer than expected and the foreclosure process seemed inevitable for many owners. The new policies mandate that borrowers fall into several situations of financial distress or hardships such as:

  • divorce
  • death of a family member
  • disability
  • transfer to another part of the country.
  • Military personnel who are permanently transferred would fall under the category.
Where to Start If You Need Help: Your current mortgage servicer will probably have all the details on their web page. Or call the telephone number on your mortgage statement.

Your Real Estate Professional is a great resource in this area. He or she, is ware of the regulations and local processes.  Click Email on left side of this page to contact your HomeActions sponsor

Fast TrackApproval Time-frames:  After November 1st, Short Sale requests that homeowners make of their mortgage servicer must be acted upon in 30 days.  If borrowers are already severely delinquent there is also good news.   Fannie and Freddie will expedite short sale requests for borrowers who are at least 90 days delinquent on their payments and have a FICO credit score below 620. These homeowners will no longer have to prove a financial hardship. The current mortgage servicer will not have to get approval from Fannie Mae or Freddie Mac given the new “hardship” criteria is met.