The Federal Housing Finance Agency has announced new guidelinesfrom Fannie Mae and Freddie Mac for mortgage servicers that willstreamline short sales rules and expand homeowners eligible for shortsales.

The new guidelines, which go into effect Nov. 1, will permit ahomeowner with a Fannie Mae or Freddie Mac mortgage to sell theirhome in a short sale even if they are current on their mortgage,provided they can prove a hardship, the FHFA said Tuesday.

Servicers will be able to expedite processing a short sale forborrowers who have eligible hardships such as death of a borroweror co-borrower, divorce, disability, or relocation more than 50miles away for a job, without additional approval from theGSEs.

The new rules will also reduce or eliminate the documentationrequired for borrowers who have missed several mortgage payments,have low credit scores, and serious financial hardships.

“These new guidelines demonstrate FHFA's and Fannie Mae's andFreddie Mac's commitment to enhancing and streamlining processes toavoid foreclosure and stabilize communities,” said FHFA ActingDirector Edward DeMarco. “The new standard short sale program willalso provide relief to those underwater borrowers who need torelocate more than 50 miles for a job.”

Credit unions with second mortgages and home equity loans andlines on their books may be pleased with another component of thenew rule, in which Fannie Mae and Freddie Mac will offer up to$6,000 to second lien holders to expedite a short sale. The move isan attempt to speed up on the approval process by avoidingnegotiations for higher settlement amounts.

Fannie Mae and Freddie Mac also waived the right to pursuedeficiency judgments in exchange for a financial contributionwhen a borrower has sufficient income or assets to make cashcontributions or sign promissory notes.

Servicers will evaluate borrowers for additional capacity tocover the shortfall between the outstanding loan balance and theproperty sales price as part of approving the short sale, theguidelines said.

Service members who are being relocated will be automaticallyeligible for short sales, even if they are current on theirexisting mortgages, and will be under no obligation to contributefunds to cover the shortfall between the outstanding loan balanceand the sales price on their homes.

Finally, the new guidance will clarify when a borrower mustsubmit their application and a sales offer to be considered for ashort sale, so that last-minute communications and negotiations arehandled in a uniform and fair manner, the rules said.

The new guidance follows FHFA rules released in June thatrequire servicers to review and respond to short sales within 30days of receipt of a short sale offer. Servicers must provideweekly status updates to borrowers if the offer is still underreview after 30 days, and must make and communicate final decisionsto the borrower within 60 days of receipt of the offer.