The New Short Sale Guidelines and Its Reality for Relocation

With the advent of new updated short sale guidelines under the Federal Housing Financing Agency (FHFA), we should highlight that any committed backing for the relocation industry still remains somewhat nebulous. For the transferring homeowner however, there are positives that will considerably reduce the burdens related to short sale offers.

Under the revised guidelines set to go forth on November 1, 2012, FHFA has determined that it is no longer necessary for homeowners to first suffer measureable loss by having to document actual hardship on several financial levels before any short sale review can be entertained. From our standpoint should we assess this new policy in practice, removal of certain primary hurdles does not resolve the main sticking points still existing between short sale lenders and the world of relocation--that is, our involvement as the ultimate “Seller” who does not take record title prior to resale, and where we frequently purchase and resell property within a very short time span [less than 30 days]. Thus in certain significant aspects, the new guidelines will be a monumental relief for the transferring homeowner; again, we should keep in mind, the FHFA updates did not provide assistance in regards to our third party position.

It is true that removal of the hardship prong will greatly contribute to swifter short sale authorizations with both the home sale and home purchase. More specifically, the relocating transferee will no longer need to suffer the duo-difficulties caused from the uprooting of the employee’s family and the unavoidable detriment to the homeowner’s credit score, triggered solely by former mortgage delinquency requirements. The new guidelines will permit record owners who are current on their mortgage and without other negative credit-to-income debt ratios to proceed toward a “conveyer belt” review.  But again there is a caveat, albeit a lenient one, in that the homeowner must still fall within certain newly-defined hardship categories. Divorce, death of a borrower or co-borrower, medical disability, new employment opportunity and an employer-directed relocation in excess of 50 miles from the original homestead [one way], are now considered the new “hardship” classifications for purposes of short sale, and without further approval from Fannie Mae/Freddie Mac. Generally in order to be eligible for the restructured short sale, the homeowner must fit within at least one of these (5) current hardship situations and the home may not be resold within 30 days of sale.

The new guidelines have further expanded primary relocation review to military personnel under a permanent change of station [PCS] orders, and up to $6,000 to a secondary lien holder, frequently known to slow short sale authorizations by combating the primary lien holder for higher mortgage payoffs.

Last but not least, relief from stagnated lender response times has also been addressed to include mandatory lender review with:

• A 30 day lender response time period from receipt of the short sale offer
• Weekly updates, should lender review exceed the 30 day response cut-off rule, and
• All final decisions to be provided to the requesting homeowner within a 60 day deadline from receipt of the short sale package

All in all, the new guidelines do indeed have a practical and pleasant upshot on both the transferee’s departure and destination home programs. Further, it is always a positive when the employer-directed transaction has been clearly recognized by FHFA in a formal manner. Certainly the relocation company can now reasonably presume [and happily anticipate] the Lender’s practical understanding of Relo’s basic requirements. On the other hand, unbridled expectations of the guidelines and its ample improvements will not necessarily translate into an untroubled alliance.

Due to the remaining conflicts with our policies and practice, and with the lingering 30 day resale rule, the accelerated FHFA process has not eliminated the lender’s underlying hesitation in permitting the Relo provider unrestricted entry into the short sale arena.

For more information or questions, please contact the author, Lizz Bontos, at lizz.bontos@sirva.com.