If you spend your days wading through the nuts and bolts of the myriad of federal short sale programs, you’re already well aware that changes are thrust upon us on a fairly regular basis. And if you’re thinking about trying to get out from underneath a mortgage you can no longer afford, trying to decide which federal short sale program applies to you – and is fully embraced by your loan servicer – is difficult at best.
The Federal Housing Finance Agency (FHFA) is at it again, this time just in time for the presidential election. The question is: Is this actually a fix, or is it yet another “feel good” measure designed to give the president a quick pop in the polls by sending anticipatory thrills up the legs of homeowners? Here are the facts and a few points to ponder. I’ll let you decide how thrilling the measure is.
New FHFA Short Sale Guidelines: The “Short” Course
Without digging too deeply into the new FHFA short sale guidelines, here’s what the feds say the program will do:
- Streamline Fannie Mae and Freddie Mac short sales by creating a single standard short sale format beginning November 1, 2012;
- Take Fannie Mae and Freddie Mac out of the short sale approval process;
- Allow borrowers who are current on their mortgages to more easily qualify for short sales;
- Special provisions in the new guidelines give extra consideration to military service members receiving Permanent Change of Station (PCS) orders;
- Approved short sales for homeowners in foreclosure would receive standardized treatment;
- Continues the Fannie Mae/Freddie Mac $6,000 payment program to lienholders who agree to subordinate their positions to facilitate a short sale (and would give homeowners up to $3,000 cash to help offset moving expenses); and
- Reinforces Fannie Mae/Freddie Mac policies requiring a minimum two year wait for new mortgages for participating homeowners
FHFA Program Adds to Previous Changes
If this latest housing “fix” reminds you more of a facelift than a total makeover of federal short sale rules, you’re right. I previously told you about some changes to the short sale process back in June, and all of those provisions still apply. These just get stacked on top of what was already done.
A Few Problems With This Simplified FHFA Short Sale Program
Just like everything FHFA does, this program really doesn’t simplify anything for Phoenix homeowners considering a short sale, or for the Phoenix short sale agents who will need to familiarize themselves with the process. It just adds a new layer of complexity to the short sale by adding in even more terms and conditions (and unyielding starting dates), coming about two months before yet another program ends. As if that’s not enough, it also:
- Requires homeowners to be current on their mortgage in order to participate, so if you’ve already fallen into foreclosure, you’ll need to seek yet another short sale solution;
- Is a toothless solution because there don’t appear to be built-in penalties for not following the new FHFA short sale guidelines;
- Leaves plenty of room for homeowner confusion because of the way mortgage servicers will be able to overlay the program with modifications which could be more beneficial to the servicers than homeowners in distress; and,
- Participation in the program appears to be voluntary, which means your mortgage servicer will get to weigh the pros and cons of participation, and will probably take a pass unless they see a clear-cut benefit to participation
FHFA Short Sale Program Verdict
I think this program is probably more about political posturing right before the election, giving the Obama administration one final shot at standing up, thumping their chest and talking about how they’re taking a stand for homeowners… without actually having to come up with a solution that will help one group of distressed homeowners without asking the American taxpayer to pay for it. On the basis of common sense, I think it’s fair to say the evidence pretty clearly points us towards a guilty verdict on charges of:
- Political posturing
- Thrilling feel good happy talk that’s really nothing more than… talk
- Blatant misunderstanding of targeting short sale programs to target homeowners who are actually at serious risk of foreclosure
What do you think? Don’t be shy… leave your comments below!