Freddie Mac Standard Short Sale
To make the short sale process easier and quicker for Servicers, homeowners, home buyers, and others involved in a short sale transaction, Freddie Mac announced the Standard Short Sale and the Freddie Mac proprietary Obtain Valuation functionality. The new requirements offer a more efficient decisioning process that eliminates extra steps for Servicers when helping struggling homeowners transition to more affordable housing and eligible home buyers purchase a home of their own.
Servicers must begin implementing the new Standard Short Sale requirements for new borrower evaluations conducted on or after November 1, 2012.
For more information, read Single-Family Seller/Servicer Guide (Guide) Chapter B65, Workout Options.
Eligibility and Servicer Delegation
Eligible Property Types
- Primary residences, investment properties, or second homes.
- Borrowers who are current or less than 31 days delinquent must occupy the mortgaged premises as their primary residence.
Every borrower is eligible to be considered for a short sale, provided:
- The borrower has one of the eligible hardships in Guide Section 65.17(a).
- The sale is an arm's length transaction as defined in Guide Section B65.40.
- The borrower has listed the mortgaged premises for sale with a licensed real estate broker, who, in turn, must have listed the mortgaged premises on the Multiple Listing Service (MLS) covering the market in which the mortgaged premises is located for at least five consecutive days. The listing period must include at least one weekend (i.e., Saturday and Sunday). The listing must be in an "active" status for at least the five days immediately preceding the day on which the purchase offer is accepted by the borrower and submitted to the Servicer for approval. Refer to Section B65.36 for additional detail.
- The borrower did not enter into a program or arrangement where a third party takes the title to the mortgaged premises and arranges a short sale in exchange for a fee.
Additionally, borrowers who are current or less than 31 days delinquent must also:
- Occupy the mortgage premises as a primary residence.
- Have a monthly debt-to-income ratio greater than 55 percent (service members with Permanent Change of Station orders are exempt from this requirement).
Servicers have delegated authority to approve a Standard Short Sale for:
- Borrowers who are 31 days or more delinquent.
- Borrowers who are current or less than 31 days delinquent, provided the borrower is experiencing one of the following eligible hardships:
- Divorce or separation
- Death of a borrower or primary wage earner
- Borrower or dependent family member has a long-term or permanent disability
- Distant employment transfer or relocation, including Permanent Change of Station orders for service members
If the borrower is current or less than 31 days delinquent and their hardship is other than one of the four listed above, Servicers may submit a short sale recommendation to Freddie Mac for approval.
Borrowers must meet all eligibility requirements in order for Servicers to approve a short sale.
Mortgage Insurance (MI) Delegation
- Servicers can approve Standard Short Sales that are completed in accordance with the Guide without obtaining pre-approval from the participating MI companies.
- Servicers can access the list of participating MI companies in the Service Loans application by selecting “Delegated MI Companies” link in the Home tab.
- The list will be updated from time to time if MI companies are added or removed from the list.
Other mortgage and borrower eligibility requirements apply as noted in Guide Section B65.36.
Solicitation and Documentation
Using a Borrower Solicitation Package, Servicers must solicit borrowers who are 31 days or more delinquent between the 31st and 35th day of delinquency and again between the 61st and 65th day of delinquency if quality right party contact was not achieved or the borrower did not respond to the initial solicitation.
Refer to Guide Section 64.6 for complete Solicitation requirements.
The borrower must submit a complete Borrower Response Package, as defined in Section 64.6, to the Servicer in order to be considered for a Freddie Mac Standard Short Sale.
The Borrower Response Package includes Form 710, IRS Form 4506T-EZ or 4506-T, and required income and hardship documentation.
Streamlined Short Sale
Unless otherwise required by applicable law, a borrower who is 90 days or more delinquent is eligible for a Streamlined Short Sale, under which the Servicer is not required to obtain the Borrower Response Package or to verify an eligible hardship when the property was not originated as an Investment Property Mortgage and:
- The Borrower’s FICO® score is less than 620, or
- The debt secured by the borrower’s mortgage has been discharged in a bankruptcy proceeding filed pursuant to Chapter 7 of the U.S. Bankruptcy Code.
Short Sale Transactions
Servicers must request an estimated market value and minimum net proceeds via the Obtain Valuation tab in the Freddie Mac Service Loans application. The property valuation results provided by Freddie Mac to Servicers will include an estimated market value and minimum net proceeds with a "good through date."
To gain access to the new Obtain Valuation functionality, you must enroll for a new authorized user role, Workout – Specialist, in the Service Loans application by completing and submitting a new Authorized User Roles Form. The forms are:
- Form 902, Freddie Mac Service Loans Application Authorized User Roles Form – For Use by Servicers Only or
- Form 902SA, Freddie Mac Service Loans Application Authorized User Roles Form – For Use by Servicing Agents Only.
The Authorized User Role Forms have been updated to include the new user role. Visit the Service Loans Application Resource Center to complete and submit the appropriate forms.
Short Sale Offers
- Acknowledge receipt of the purchase offer within five business days.
- Notify the borrower within five business days of receiving the purchase offer if there is outstanding information needed to evaluate the offer.
- Respond with a purchase offer decision within 30 days of receipt of the purchase offer.
Short Sale Counteroffers
- Servicers may only submit a counteroffer if the purchase offer is less than the minimal net proceeds.
- The borrower must respond to the Servicer's counteroffer within five business days of the date the counteroffer is received.
- The Servicer must respond to the borrower within 10 business days of receiving the borrower's response to the counteroffer.
Refer to Guide Section B65.39 for complete requirements.
Short Sale Affidavit Document
- Short Sale Affidavit, located in Guide Exhibit 97.
- Servicers must obtain a short sale affidavit when requiring parties to the transaction to attest that the sale constitutes an "arm's length" transaction.
- Servicers may use Guide Exhibit 97, Short Sale Affidavit, or a customized equivalent that contains the same level of specificity as the template.
Servicers must continue using Workout Prospector® to submit short sale transactions to Freddie Mac.
- $2,200 will be paid upon successful completion of the borrower's short sale.
- Borrowers may be paid up to $3,000 to help with relocation expenses after a completed short sale has been received.
- If a Servicer is aware that the borrower has received relocation assistance funds from a third party, Freddie Mac will pay the difference up to $3,000.
- Servicers may in their discretion offer the borrower additional financial incentives from their own funds to complete the short sale, but Servicers cannot deduct this payment from the short sale proceeds.
Subordinate Lien Holder Incentives
- Payment of up to an aggregate of $6,000 to subordinate lien holders will be offered in exchange for releasing each subordinate lien, extinguishing the underlying debts, and waiving the right to pursue the deficiency.
Real Estate Broker Commissions
- Unless a real estate broker's sales commission exceeds six percent of the homeowner's mortgage, Servicers cannot renegotiate a lower sales commission.
Single-Family Updates and News Articles
- December 18, 2013 – Foreclosure, Alternatives to Foreclosure, and LPI Requirement Changes
- November 25, 2013 – Guide Bulletin 2013-24 Announces Servicing Updates That Help More Borrowers Avoid Foreclosure
- June 14, 2013 – Guide Bulletin 2013-10 Announces Changes to Servicing Requirements
- Standard Short Sale Real Estate Professional Flyer
- Frequently Asked Questions
- Borrower Contributions for Standard Short Sales and Standard Deeds-in-Lieu
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- Register for our webinar for Servicers: Freddie Mac Standard Short Sale and Deed in Lieu of Foreclosure.