Fannie Mannie Plans

Policies on short sales overhauled

Fannie, Freddie add hardship criteria for underwater homeowners

BY KENNETH R. HARNEY

WASHINGTON POST WRITERS GROUP

Facebook Twitter Reddit Digg E-mail Print Rss

WASHINGTON -- Mortgage holders who are underwater and facing financial distress stand to benefit from Fannie Mae's and Freddie Mac's new short-sale reform policies.

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 of employment 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.

Short sales allow borrowers and lenders to avoid the 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.

In what could be a far-reaching change, Fannie and Freddie will allow borrowers who are current on their mortgage payments -- not seriously delinquent, as traditionally 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.

Under rules that took effect in June, loan servicers already are 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 must give applicants a final decision within 60 days of receipt of a completed short-sale package.

In the past, short sales...