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New short sale requirements for servicers proposed by the Federal Housing Finance Agency are giving financial firms a battle strategy for dealing with reluctant subordinate-lien holders who attempt to delay short sales on points of negotiation.
Some parties in short sales are able to delay the process by objecting to certain conditions and attempting to negotiate higher prices.
Fannie Mae and Freddie Mac launched new short-sale guidelines for servicers to speed up and streamline the process of moving distressed borrowers through a short sale. The guidelines take effect Nov. 1.
The program, which is part of the Federal Housing Finance Agency's Servicing Alignment Initiative, allows servicers to approve a short sale for borrowers who have certain types of hardships even if they have yet to default.
The program also removes barriers created by some subordinate lien holders by limiting subordinate-lien payments to $6,000. This maneuver essentially cuts off any attempts by the second-lien holders to negotiate for larger payoff amounts.
"By setting a standard payout amount and a limit for every transaction, Fannie Mae is removing the guess work and standardizing the transaction to help accelerate the short sale process," Fannie Mae said in a statement.
The FHFA's new guidelines waive deficiencies for borrowers who complete a short sale and gives servicers the authority to approve and complete short sales that conform to the new standards without individual approval from the GSEs.
Borrowers dealing with the loss of a co-borrower, divorce, legal separation, illness, disability or a distant employment transfer will have the option of getting a short sale approved by the servicer before they actually default on a payment. Fannie also is culling down on the amount of documentation required to complete a short sale under hardship circumstances and eliminating certain documentation requirements for borrowers who are 90 days or more delinquent or living with a credit score below 620.
"Short sales have become an increasingly important tool in preventing foreclosures and stabilizing communities," said Leslie Peeler, senior vice president, National Servicing Organization, Fannie Mae. "We want to help as many homeowners avoid foreclosure as possible. It is vital that servicers, junior lien holders and mortgage insurers step up to the plate with us. These new guidelines will open doors to help more homeowners qualify for short sales, remove barriers to completing short sales, and make the process more efficient for homeowners and servicers."
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