In an attempt to consistently refine and keep up with demand on FHA short sales, FHA has recently made some changes to assist borrowers further, and hopefully make the short sale process much easier. Below is a summary of the new guideline and process. Click Here
Effective October 1, 2013, HUD has announced the following changes to their Federal Housing Administration (FHA) short sale requirements.
Let’s start with the big three that are certainly an added benefit to the consumer:
Change in default requirement – In the past a borrower had to be at least 31 days behind on their mortgage at closing to qualify for a FHA short sale. Now, that requirement is no longer required if a borrower can demonstrate hardship. Hardships may include loss of employment, curtailment of income, death of a co-borrower, divorce, disability, or job relocation among other possible hardships. One of the procedural changes used by the lender to qualify a homeowner is a guideline called the Deficit Income Test (DIT). The DIT is used to determine if a borrower can pay their mortgage or if the borrower is experiencing hardships that could qualify them for a short sale.
Streamlined FHA short sale– FHA has implemented a “streamlined” process that many investors and servicers have been using as a similar model. This will help cut down on paperwork and turnaround time. In these cases the borrower can go through the short sale process with limited paperwork and the DIT is not required. When the streamlined PFS (pre-foreclosure sale) process is deemed appropriate for an FHA short sale, the DIT would not be required. Servicers can approve a borrower for a streamlined short sale without verifying hardship or obtaining a complete borrower workout packet if certain conditions are met. We will discuss the qualifications and process for this in detail in the next post.
Increased financial incentive – In the past if you qualified for an FHA short sale you could get up to $1000 in relocation money. Note this is only in owner occupant situations. Now the incentive has increased to $3,000 if a homeowner successfully completes the short sale transaction. The entire $3000 is not guaranteed to all go to the homeowner, and there is not a guarantee that every homeowner applying for a short sale will get it, but it surely is a step in the right direction, increasing possible monies available.
There was also a pretty big change that was not the case with FHA short sales in the past. Now the servicer has to determine if the borrower can make a “cash contribution”. Simply put, if the borrower has cash reserves that could be used to contribute to the loss they may be asked to contribute and they would be unlikely to receive the $3000 incentive; this is explained in detail in their Mortgagee Letter 2013-26, which we highlighted above.
This is just a summary of some of the new guidelines, and we will talk in detail in the next post about the streamlined process and keep you posted going forward of how it is working!