The Federal Housing Finance Agency announced new short sale rules today that could make it easier for borrowers to sell their homes for less than what they owe on their mortgages.

The new rules go into effect Nov. 1 and apply to mortgages owned by Fannie Mae and Freddie Mac, which account for more than half of the outstanding mortgages in the United States.

Here are some of the main changes:

• Fannie Mae and Freddie Mac will allow servicers to expedite the short sale process for borrowers who have missed three mortgage payments, have credit scores lower than 620 and are going through serious financial hardship. These borrowers generally are asked to submit extensive documentation to prove hardship. The documentation requirement will be reduced, and in some cases eliminated, starting Nov. 1.
• Borrowers who are struggling to pay their mortgages because of divorce, disability, job transfer or death of a co-borrower will have their short sale process expedited even if they are current on the mortgage.
• Service members who are being relocated will be automatically eligible for short sales and will not be responsible for the balance on the loan after the home is sold.
• Fannie and Freddie will limit the amount paid to second mortgage lenders to $6,000. The payment is currently used as an incentive to get the second lien holder to agree to the sale. Some lenders slow down the process as they try to negotiate higher payments. With the cap, lenders will know upfront what they can receive and won’t drag the process — at least, that’s the FHFA’s theory.

These new rules are part of an effort that started in May, when the FHFA established timelines for servicers doing short sales. The guidelines require servicers to respond to a short sale within 30 days of receipt of a short sale offer. The borrower must be given a final decision within 60 days.

Do you think servicers will follow the new guidelines?

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