Nearly as important as the new eligibility rules, Nigro said, is the $6,000 cap on compensation for the holders of second and third liens, who in the past had held up short sales in an effort to reduce the size of the loss they would have to take.
In many cases, the servicer of a Fannie-Freddie mortgage originated, and may hold, the second-lien, which was used to “piggyback” the primary loan and offer the kind of no-money-down financing that was rampant during the housing bubble.
This arrangement can make the servicer reluctant to accept a short sale that wipes out the second lien and in many cases $6,000 is not going to cover it.
“Those could be big losses and losses that would fall on the banking system,” Nigro said. “Everybody wants to delay writing off the losses as long as they can.”
Other changes include streamlining the short-sale paperwork for eligible homeowners, providing special treatment for relocated members of the military and automatic approvals for borrowers who can prove hardships including divorce, disability, a family death or new job more than 50 miles from home.
For those borrowers who qualify, Fannie and Freddie promise not to pursue a “deficiency judgment” against them for the shortfall between the loan balance and sale proceeds.
Realtor Karl Martone, who has become a short-sale specialist at The Martone Group in North Smithfield, welcomed the new rules and wished they had been in place before.
“Everything that they are doing is excellent – I wish they had done it sooner,” Martone said.
For the second-lien holders, Martone said $6,000 might not sound like much, but it’s more than they have been getting in many instances.