Will Frannie’s new program increase the rate of short sales in California?
- Yes. (63%, 86 Votes)
- No. (37%, 51 Votes)
Total Voters: 137
Fannie Mae and Freddie Mac (collectively Frannie) are requiring mortgage servicers to complete short sales under one uniform approval process, called the Standard Short Sale/HAFA II. Frannie expects this streamlined process will make short sales uniform, faster, easier and clearer. Under this new program:
- homeowners current on their mortgage payments will be eligible for a short sale if they meet other hardship criteria;
- Frannie will wave deficiency collection in exchange for a “cash contribution” from borrowers meeting specific financial guidelines (contribution not to exceed 20% of the borrower’s reserve funds or other assets);
- members of the military who are being relocated will be automatically eligible for the program; and
- Frannie will offer up to $6,000 to second lien holders to speed the short sale.
Homeowners with Frannie-held mortgages may be eligible for a short sale if they meet one of the program’s hardship criteria, including:
- death of a borrower or co-borrower;
- divorce;
- unemployment;
- disability; or
- relocation for a job.
The new guidelines are effective November 1, 2012.
first tuesday Insight
Frannie’s newly broadened eligibility requirement for a short sale ought to be a gift to underwater homeowners current on their payments. It ought to stimulate the housing market by leaving homeowners’ credit intact, allowing the pool of employed homebuyers to remain undiminished while freeing-up more properties for sale. No penance necessary for underwater homeowners before entering into a new home loan agreement. Right?
Related article:
July Letter to the Editor: The credit score damage: foreclosure vs. shortsale
Wrong. Recent reports on the effect of the standardized HAFA II short sale on non-delinquent homeowner credit reveal that delinquent and non-delinquent homeowners who participate in this program will be given the same treatment by credit reporters. No NOD? No matter; a short sale is a short sale due to a discounted payoff of the mortgage, and that at the FICO level remains an indicator of a high-risk borrower. The homeowner did not pay the lender as agreed to in the note and trust deed — period.
Related article:
L.A. Times: Fannie-Freddie short-sale program may hurt sellers’ credit scores
Sincere agents will counsel their short sellers of potential damage these transactions will do to credit scores. To best defend their sellers, agents must ensure the loan payoff agreement on a short sale includes a provision that the lender will report the payoff to the credit agencies as “paid as agreed.” Without written lender consent in the form of a “paid as agreed provision” in the final payoff documents, the seller’s credit will be destroyed – by systemic design.
Even though this credit score penalty limits the incentive for homeowners to rid themselves of their negative equity asset, many homeowners will still choose to short sell without sensing they are “guilty” of a default if the option is given to them. All this means Frannie’s new program will likely increase the number of short sales transactions.
Though not ideal, Frannie-encouraged short sales will allow more underwater homeowners to escape their negative equity. That, most importantly for the family, will free them of excessive payments for housing and allow them a fresh start toward a higher standard-of-living, which has suffered in this Lesser Depression.
The MLS result: more homes for sale in the housing market — and more fees for agents.
Some things will remain unchanged in this matrix. Demand will be reduced as the short-sale seller exits homeownership, unable to soon purchase a new home funded by a purchase-assist mortgage. They will be removed from the market, no differently than in the past, pre-Frannie hype. However, by accelerating the process of moving homeowners out of their negative equity properties, the process of recovery will also be hastened. In the meantime, the rental market can thank Frannie for growing the population of tenants.
Related article:
Re: “Single-Family Seller/Servicer Guide (‘Guide’) Bulletin” from Freddie Mac and “FHFA Announces New Standard Short Sale Guidelines for Fannie Mae and Freddie Mac; Programs Aligned to Expedite Assistance to Borrowers” from the Federal Housing Finance Agency
Has everyone gone stupid?? Why would anyone (especially Brokers) allow their clients to do this? All a underwater homeowner in California has to do is stop paying and live in the house for a year or so rent/mortgage free until the bank gets around to filing proper papers as required by Calif law – Read – NO DEFICIENCY STATE – the only thing the bank gets is the security for the Trust Deed which is the ‘house’ for those of you in the above category, at what value it has, not your paycheck, not your bank account, not your future earnings, not your Unemployment Check, nothing else / read NO DEFICIENCY STATE). When they get around to filing for Foreclosure then just offer the bank to sell the house (short sale) for their (the banks) BENEFIT (Foreclosure will cost them much more). If they are not stupid (hummm) they will agree. If they don’t agree then tell them to pound sand and you will continue to live there until foreclosure is completed 6 to 10 months more of no rent/Mortgage payments. It doesn’t matter, any way your credit will take a hit either way!! You ain’t gonna be able to by back into the housing market anyway. So which sounds best to you??? Am I wrong ????
Where does Frannie get the $6K? Tax payers money, since they have to be helped by the government. More inventory will lower prices of homes.
The bill that removed 750,000 wholesale brokers from the lending industry and replaced with more regs
and requirements for the retail mortgage brokererage, I think it is Dodd/Frank but could be different. needs
to be repealed. Also, the so called added jobs (more government oversight) Obama claims needs to be
eliminated. The wholesale lending industry was a check and balance of competitative shopping for borrower
but has been eliminated and more government intervention added. The Brokerage community has a few
bad ones just as the legal profession or medical community does too. Are we going to remove integral
parts of those professions as well. Maybe Obama will form more government jobs.
Here we go again. Much like the “programs” of the 2000 to 2006 era in which Fannie and Freddie lowered the down payment requirements to zero in many cases to appease the left, this new “program” produces more volume in the market by offering rewards to the irresponsible among us while at the same time making the realtors and appraisers and loan originators very happy from the increased sales volumes. As a landlord, this time it also put $$$$ in my pocket too. But no good will come of it.
I say bravo to FICO for not bowing to pressure from those groups who seek short term gains against the Country’s long term financial health.
You can offer and throw out all the new guide lines you want. But they become meaningless when the final decision maker to implement them, is left in the hands of the Lender and Investor note holder. A $6K payoff to the 2nd holding a $50K note-Ain’t gonna happen. If you really want to fix this mess, Talk to people on the street, in the trenches who have to deal with all of your B.S. band aid fixes everyday. I don’t care to participate, thank you very much. And neither do my clients.
The simple truth is that if you are underwater and current on payments, meet a hardship that is required, you can short sale. However, now you are a tenant in a depressed inventory market. Which means you have to wait at least 2 years to try and qualify for a new purchase loan. Who really benefits ? The lenders and the investor (fannie freddie) benefit.
In some markets primarily coastal california seller’s markets are popping up. Because there is a reduced inventory, prices have spiked.
If the lenders and investors want to help waive the 2 year wait for current underwater homeowners and we will have a stable recovery and not a spiked market.