Short Sale Late Req’d/FHLMC

When Short Sale must be initiated: detailed lender criteria that homeowner must be delinquent or not, and if Imminent Default is acceptable.

Documentation found to determine if late payments required by Freddie Mac directly. However, lenders and servicers may have additional overlays that apply.


Federal Housing Finance Agency (FHFA)

FHFA oversees both Fannie Mae and Freddie Mac.

[1]FHFA Announces New Standard Short Sale Guidelines for Fannie Mae and Freddie Mac

The new guidelines, which go into effect Nov. 1, 2012, will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship. Servicers will be able to expedite processing a short sale for borrowers with hardships such as death of a borrower or co-borrower, divorce, disability, or relocation for a job without any additional approval from Fannie Mae or Freddie Mac.

ELIGIBILITY REQUIREMENTS
The existing mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.

The person must have a demonstrated hardship which includes:

•Death of a borrower or death of the primary or secondary wage earner in the household

•Unemployment

•Divorce

•Long-term disability

•Distant employment transfer/relocation (more than 50 miles one way)

•Increased housing expenses

•Disaster (natural or man-made)

•Business failure

•Borrowers that need to relocate more than 50 miles one way for a job, including service members with Permanent Change of Station Orders, can be current or delinquent on their mortgage to apply for a short sale.

•Borrowers who have the capacity to contribute to shortages will be asked to make a reasonable contribution toward the shortfall. However, service members with Permanent Change of Station Orders will not be asked for a contribution towards the shortage for properties purchased on or before June 30, 2012.

•Borrowers will not be eligible for a new mortgage backed by Fannie Mae or Freddie Mac for at least two years after a short sale.

Freddie Mac

Eligibility and Servicer Delegation

Eligible Property Types

65.17: Verifying a Borrower’s hardship (06/03/14)

(a)Eligible hardships   A Borrower must have one or more of the eligible hardships identified below in order to be eligible for certain workout options (including a modification under the Home Affordable Modification Program) or certain relief options. The Borrower must document the financial hardship by:

•Signing and submitting to the Servicer a completed Form 710, Uniform Borrower Assistance Form; and

•Providing to the Servicer the applicable hardship documentation described below.

Borrower Eligibility

Every borrower is eligible to be considered for a short sale, provided:

  • The borrower has one of the eligible hardships in Guide Section 65.17(a). (See below)
  • The sale is an arm’s length transaction as defined in Guide Section B65.40.
  • The borrower has listed the mortgaged premises for sale with a licensed real estate broker, who, in turn, must have listed the mortgaged premises on the Multiple Listing Service (MLS) covering the market in which the mortgaged premises is located for at least five consecutive days. The listing period must include at least one weekend (i.e., Saturday and Sunday). The listing must be in an “active” status for at least the five days immediately preceding the day on which the purchase offer is accepted by the borrower and submitted to the Servicer for approval. Refer to Section B65.36 for additional detail.
  • The borrower did not enter into a program or arrangement where a third party takes the title to the mortgaged premises and arranges a short sale in exchange for a fee.

Additionally, borrowers who are current or less than 31 days delinquent must also:

  • Occupy the mortgage premises as a primary residence.
  • Have a monthly debt-to-income ratio greater than 55 percent (service members with Permanent Change of Station orders are exempt from this requirement).

Servicer Delegation

Servicers have delegated authority to approve a Standard Short Sale for:

  • Borrowers who are 31 days or more delinquent.
  • Borrowers who are current or less than 31 days delinquent, provided the borrower is experiencing one of the following eligible hardships:
    • Divorce or separation
    • Death of a borrower or primary wage earner
    • Borrower or dependent family member has a long-term or permanent disability
    • Distant employment transfer or relocation, including Permanent Change of Station orders for service members

If the borrower is current or less than 31 days delinquent and their hardship is other than one of the four listed above, Servicers may submit a short sale recommendation to Freddie Mac for approval.

Borrowers must meet all eligibility requirements in order for Servicers to approve a short sale.

Borrower eligible hardships for Freddie Mac directly, effective 6/3/14: Not servicer!

FHLMC HDSP.6.14

(b) Situations not considered to be an eligible hardship Any other events or circumstances other than those described above in Section 65.17(a) are not considered eligible hardships for purposes of eligibility for a workout option or certain relief options under the Guide. For example, the following are not considered eligible hardships:

1. Depreciation in the value of the Mortgaged Premises
2. Temporary income interruption, but the Borrower has assets (liquid or that can be liquidated) available to pay the Mortgage
3. Interest rate adjustment on an ARM or re-amortization of an interest only Mortgage upon expiration of the interest only period

Mortgage Insurance (MI) Delegation

  • Servicers can approve Standard Short Sales that are completed in accordance with the Guide without obtaining pre-approval from the participating MI companies.
  • Servicers can access the list of participating MI companies in the Service Loans application by selecting “Delegated MI Companies” link in the Home tab.
  • The list will be updated from time to time if MI companies are added or removed from the list.

Other mortgage and borrower eligibility requirements apply as noted in Guide Section B65.36.


 65.16: Delinquency, default and imminent danger of default (01/01/12)

Throughout this chapter and Chapters A65, B65 and 66, Freddie Mac will use the term Delinquency, which is defined in the Glossary, rather than the term default. Many of the specific requirements for workout options are tied to the severity of the Delinquency.

Except as set forth in Sections B65.15 and C65.5.2, a Borrower is considered to be in imminent danger of default, if, based upon the facts and circumstances of the particular Mortgage and using prudent business judgment, it appears more likely than not that the Borrower will default on his or her Mortgage payments within the next 12 months. 


TO: Freddie Mac Servicers June 3, 2014 | 2014-10

SHORT SALES AND DEEDS-IN-LIEU OF FORECLOSURE

Unless otherwise noted, the changes below are effective for new short sale and DIL evaluations conducted on and after August 1, 2014. However, Servicers may implement these changes earlier if they are operationally able to do so.

 Eligibility for service members with Permanent Change of Station (PCS) orders

We are expanding short sale and DIL eligibility to permit a service member to qualify for a short sale or DIL provided the Mortgaged Premises is or was previously the Borrower’s Primary Residence. This change assists service members who may have moved to a new Primary Residence as a result of having received PCS orders and later decided to sell the former residence. In order to be eligible, the service member must have purchased the Mortgaged Premises on or before June 30, 2012.

When a short sale or DIL is approved for a service member as provided above, the service member will receive the existing benefits afforded to a service member with PCS orders: exemption from making a Borrower contribution and exemption from the requirement that the Borrower’s current monthly debt payment-to-income ratio must be greater than 55% if the Borrower is current or less than 31 days delinquent.

 Borrower ineligibility due to a new Mortgage

We are revising our requirement regarding the period of time during which a Borrower seeking a short sale or DIL must not have obtained a new Mortgage. Under the revised requirement, the Servicer must review the Borrower’s credit report to determine that the Borrower did not obtain a new Mortgage in the six months preceding the Borrower’s Delinquency or, in the case of a Borrower who is current, in the six months preceding the evaluation of the Borrower for a short sale or DIL. If the Borrower obtained a new Mortgage during that time and the Borrower’s hardship was other than distant employment transfer, the Borrower is not eligible for a short sale or DIL. We are implementing this new lookback period as data indicates a correlation between a Borrower obtaining a new Mortgage and subsequent default on an existing Mortgage.

In a related change, Servicers are now required to investigate any inquiries by mortgage creditors that appear on the Borrower’s credit report as it may take a new Mortgage several months to appear on the Borrower’s credit report.

If the Servicer’s review of the credit report indicates that a mortgage creditor has made an inquiry within the previous four-month period, the Servicer must contact the Borrower to determine:

• The address of the property to which the inquiry pertained,

• The purpose of the inquiry (e.g., refinance or purchase Mortgage) and

• The result of the inquiry (e.g., refinance or purchase Mortgage is pending, closed or canceled)

If the Servicer determines that a new Mortgage was obtained for the purchase of another property, then the Servicer is not delegated to approve the short sale and the file must be sent to Freddie Mac.

Borrower contribution requirements

The Guide requires that for a short sale and DIL, the Servicer (i) conduct Borrower contribution evaluations using the Borrower’s Cash Reserves and the Borrower’s Promissory Note Payment Capacity formulae provided in the Guide and (ii) determine subjectively if the Borrower has the capacity to make a cash and/or promissory note contribution.

Effective August 1, 2014, we will require the Servicer to rely solely upon the results of the Cash Reserves and Promissory Note Payment Capacity formulae to determine when to request a Borrower contribution from a Borrower who is 31 days or more delinquent, thereby removing subjectivity from the process. In terms of a cash contribution, the Servicer will make an initial request for a cash contribution of 20% of the Borrower’s Cash Reserves when the Borrower’s Cash Reserves exceed the greater of $10,000 or six times the Borrower’s total monthly payment on the Mortgage (as defined in Sections B65.37.1 and B65.44.1). In determining a promissory note contribution, the Servicer must request the promissory note amount calculated using the Borrower’s Promissory Note Payment Capacity formula. If the Borrower indicates financial circumstances that limit the Borrower’s ability to meet the cash and/or promissory note contribution requested, then the Servicer may accept a lower level of contribution. In this event, the Servicer must document the specifics of the Borrower’s financial limitations in the Mortgage file.

We are also adding a requirement that if a Borrower is unwilling to make a contribution that the Servicer deems acceptable based on the Borrower’s financial situation, then the short sale or DIL must be submitted to Freddie Mac for approval.

Our requirements for determining a cash contribution from a Borrower who is current or less than 31 days delinquent remain unchanged. A Borrower who is current or less than 31 days delinquent is required to contribute 20% of his or her Cash Reserves unless the Borrower’s financial hardship is due to the death of a Borrower or death of either the primary or secondary wage earner in the household. The Servicer must continue to submit to Freddie Mac any short sale or DIL request for a Borrower who is current or less than 31 days delinquent and cannot or will not contribute 20% of his or her Cash Reserves (with the exception of the financial hardship of death of a Borrower or death of either the primary or secondary wage earner in the household).

Currently, there is no minimum requirement for cash contributions from the Borrower. Effective August 1, 2014, we are establishing a minimum cash contribution amount of $500. If, after requesting the initial contribution amount, the Servicer determines the Borrower is unable to contribute at least $500 towards the deficiency, then the Servicer must not collect a cash contribution.

DISTANT EMPLOYMENT TRANSFER/RELOCATION BORROWER HARDSHIP

Effective immediately

We are limiting the hardship documentation for the eligible hardship of “Distant Employment Transfer/Relocation” to either a:

• Signed offer letter or notice from the employer showing the transfer to a new employment location, or

• Paystub from the new employer

Previously, Form 710 had permitted a Borrower to provide a written explanation in lieu of a letter from the employer or the paystub documentation. We are revising the documentation requirements to clarify that this hardship is limited to circumstances where the Borrower has already obtained employment in the new location or the Borrower’s job is being transferred to a new location. A Borrower who relocates without a verifiable job offer or job transfer must identify the hardship reason that resulted in the Borrower’s decision to relocate, as applicable.

Section 65.17, Verifying a Borrower’s Hardship, and Form 710 have been updated to reflect this change.

[1] Freddie Mac Standard Short Sale/ http://www.freddiemac.com/singlefamily/service/short_sales.html

[2] Freddie Mac Single Family Seller/Servicer Guide/Ch. 65: Loss Mitigation/ http://www.allregs.com/tpl/Main.aspx