I just got a short sale denied because of investor guidelines. Apparently Fannie Mae no longer approves short sales if there is a monetary hardship. My client is bleeding from the payments and is on the verge of exhausting her savings. The new guidelines say that  FNMA only approves short sales if the hardships are due to death, divorce or legal separation, illness or disability, or distant employment transfer. Has anybody encountered this and is there a way around it? The servicer is Nationstar. Help!

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Hi take a look at this it might be relevant.  It seems as the stated hardships are still guidelines that eliminate the servicer from having top go to the investor for approval.  Doesn't mean they cannot.  It might depend on if they still reside in the property and have not purchased another home during hardship period  see below.  It seems as well if delinquent past 90 days it does not apply.I am not sure but take a look.

Subsequent Home Purchase No Longer Disqualifies Homeowner 

In the past, lenders and servicers could not approve a short sale if the homeowner subsequently purchased another property.  This policy affected many homeowners who innocently purchased a new home following an employment relocation or job transfer only to later discover that they couldn’t sell their previous home due to the market collapse.

According to the new Fannie Mae short sale guidelines, the servicer will review a borrower’s credit report for any NEW mortgage loans DURING the term of the borrower’s financial hardship. IF IF IF IF during the term of the hardship, the borrower purchased another primary residence, the servicer can approve the short sale without Fannie Mae approval only if the hardship was due to distant or new employment transfer (at least 50 miles away) or receipt of PCS orders.

If the borrower has a hardship other than those listed above, and has purchased another residence during the term of the hardship, the servicer must submit the short sale request to Fannie Mae for written approval. While the new policy likely excludes homeowners who voluntarily upgraded to a larger home before the market collapsed,  it no longer penalizes homeowners who purchased another home following a job relocation.

Less Paperwork

The new Fannie Mae short sale guidelines streamline documentation requirements for all lenders and servicers. Fannie Mae significantly reduced the documentation required to complete a short sale, including requiring no documentation of a borrower’s hardship if they are 90 days or more delinquent and have a credit score lower than 620.  The no proof of hardship policy removes barriers for those homeowners who are most in danger of foreclosure and increases servicer efficiency in completing a short sale.

Lenders and Loan Servicers

Delegated Authority

Pursuant to the Fannie Mae short sale guidelines, all servicers will have the delegated authority to approve and complete short sales on all loans owned by Fannie Mae as long as they conform to the new requirements. It is also important to note that this delegation of authority includes agreements with mortgage insurance companies.

Mortgage insurers provided lenders with insurance polices against homeowner default in exchange for collecting monthly premium payments. When the market collapsed, mortgage insurers weren’t able to pay all of the insurance claims so they successfully negotiated settlements with Fannie Mae and Freddie Mac.

Prior to these settlements, independent short sale approval was required from mortgage insurers on all loans with mortgage insurance. In contrast, the new short sale guidelines enable lenders and servicers to approve short sales without requiring independent approval from underlying investors and private mortgage insurance companies.

By consolidating all short sales into a uniform program and granting delegated approval authority, the new short sale guidelines make it easier for lenders and servicers to process all short sale requests, regardless of whether the loan has mortgage insurance.

A little more info.

Qualifying Borrowers That Are Current on Their Mortgage Obligations

The FHFA’s new guidelines attempt to address many of these shortcomings, particularly for homeowners who are current on their mortgage obligations but in a position where default is imminent.

Under the new guidelines, as long as the homeowner can demonstrate that he is suffering a recognized “hardship,” servicers can expedite the short sale process without any additional approvals from Fannie Mae or Freddie Mac. FHFA News Release, supra. The hardships enumerated by FHFA are:

  • • death of a borrower or death of the primary or secondary wage earner in the household;
  • • unemployment;
  • • increased housing expenses (that is, ARM loan rate adjustments);
  • • disasters (natural or man-made);
  • • business failure;
  • • long-term or permanent illness or disability of borrower, co-borrower, or dependent family member;
  • • divorce or legal separation of a borrower or co-borrower; and
  • • employment transfer/relocation (including Permanent Change of Station order for military personnel) greater than 50 miles from current primary residence.

*********Note that if a borrower faces a hardship not listed above and provides relevant documentation to the servicer, the servicer must review the Borrower Response Package and make a determination on whether the short sale request is legitimate. It must then submit that recommendation to Fannie Mae/Freddie Mac for approval. Standard Short Sale, supra, at 4. This might be what you need to escalate the file up the chain or have the situation readdressed. 

Streamlined Short Sale Approach for Borrowers Most in Need  *****

In addition, the new guidelines have all but eliminated the need to provide a Borrower’s Response Package for borrowers deemed most in need, that is, who are 90 days or more delinquent in their mortgage payments, have credit scores of less than 620, and have serious financial hardships. These borrowers are deemed qualified for a short sale and are exempt from the requirements to make any cash contribution or sign a promissory note as part of the short sale process.

These borrowers also will qualify for a “relocation” incentive of up to $3,000 from Fannie Mae to be paid following the successful completion of a short sale. There are exceptions to this policy. The incentive is not available to borrowers required to contribute funds or execute a promissory note, a military borrower who receives a Dislocation Allowance (DLA) or other governmental relocation assistance, or a borrower receiving relocation assistance from any other source. Id. at 14.

For borrowers that qualify, these changes should significantly cut the delays associated with getting a short sale approved.

Eric, You are the man! Thank you so much for this detailed feedback. I''m printing it out and saving it in my GSE shortsale file for future reference!

Glenda, have you gone on Homepath.com to dispute this finding? I have not encountered this, but I can believe it, because there are now so many people who are living in their homes without paying until they are 2 clicks away from foreclosure and then starting short sales only to try to get the sale date postponed. I am not familiar with the guideline that Nationstar is stating, but HomePath.com is probably the only way to fight back. At least with HomePath.com you are dealing directly with Fannie Mae and you know the determination is coming from them and not from someone at Nationstar. It's worth a shot.

thanks, Vicki. I am going directly to them for additional consideration. I do appreciate your valuable feedback

Would one of you provide a link to the new Fannie Mae guidelines?

I have never personally encountered this with Fannie.  That said, their servicers will often misinterpret (or, dare I say, misrepresent) their investors' policies and make a statement that is simply inaccurate.  As is quite likely the case here.

My guess would be that this denial is a result of your client being current on their mortgage payments.  I have had a number of files get initially denied by Freddie and Fannie for this very reason.  In each case, I was able to resubmit - and get approvals - after the borrower had missed at least 60 days of payments.  This causes them to take the hardship a lot more seriously.  While I would caution against directly instructing your client to miss payments, you can explain the logic behind it, and should they opt to do so, you should get this approved.

I would also (if, of course, you have not already) closely reexamine your clients' hardship letter and financial form (RMA, 710, etc.) and make sure that their hardship is laid out in the most dire terms possible.  It can never hurt to have your client go back and further elaborate on the financial pain they're currently experiencing.

Finally, I wouldn't necessarily take Nationstars' word as gospel.  My personal experience with them over the last 12 months has not been favorable - forced auctions, very bad information, etc.  I would recommend getting this directly from the horses' mouth so to speak and contact Fannie directly, as Vikki had also suggested in her post.  You'll need to have your LOA updated by your client to include Fannie Mae as well as the servicer and upload via their HomePath site.  You can then follow up via phone at 1-800-7FANNIE.

Good luck to you.  It's going to take some additional cycles, but I think you can likely get your approval in the end.

Thanks so much for this valuable information. I have restarted the process and am going to include Fannie Mae in the initial discussion. I do appreciate your feedback on this.

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