The Federal Housing Finance Agency will allow military servicemembers who are current on their Fannie Mae or Freddie Mac mortgage to short sale their home when given Permanent Change of Station orders.
The announcement was done jointly with the Consumer Financial Protection Bureau, Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Administration and the Office of the Comptroller of the Currency as part of a wider release of rules for mortgage servicers dealing with these borrowers.
When PCS orders come down, military borrowers are required to move even if they owe more on the mortgage than the home is worth, making them ineligible to sell their home. They're only options were to continue paying a mortgage for a house they no longer lived in or default on the loan.
The FHFA policy change would allow the short sale to go through, and would waive any deficiency judgment against the borrower. The new rule covers any military borrower who purchased a house on or before June 30, 2012.
"It is in everyone's interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction," said FHFA Acting Director DeMarco.
Early last year, it surfaced that JPMorgan Chase (JPM) overcharged 4,000 servicemembers for their mortgage and improperly foreclosed on 14 families. The scandal was part of wider problems in the servicing industry, and federal regulators along with the banks moved to reform the way they handle these loans.
In September, the Treasury clarified guidance for the Home Affordable Foreclosure Alternatives program, to allow military members with loans held by any investor to short sale the property if given PCS orders.
GSE servicing guidance requires servicers to treat PCS orders as a hardship when considering modification or other loss mitigation options.
"Freddie Mac is proud to support this important new effort to help servicemen and women when national duty requires them to sell their homes in an uncertain market," said Paul Mullings, interim head of single family business and information technology at Freddie Mac. "We look forward to working with our servicers on this new short sale policy."