Borrowers who are in the military are often ordered to quickly pick up and move to another location. But current market conditions leave some service members with negative equity and few alternatives to deal with their properties. So federal regulators have come up with a solution.
Military families who are required to move as part of their active duty will be able to utilize a short-sale transaction if their loans are owned or guaranteed by either Fannie Mae or Freddie Mac, according to a bulletin from the Federal Housing Finance Agency.
The policy was announced at a joint press conference Thursday with officials from the FHFA, Consumer Financial Protection Bureau and Department of Defense. The event was held to release interagency guidance on servicer practices that impact servicemembers.
Short sales will be available to members of the military impacted by a permanent change of station whether or not their mortgages are delinquent. Qualifying loans must have been originated prior to the end of this month.
The new guidelines prohibit Fannie and Freddie from attempting to collect a deficiency judgment from impacted borrowers. The pair also cannot pursue any cash contributions or promissory notes.
“Permanent change of station orders often require quick moves and can create hardship for military homeowners who are underwater on their mortgages and therefore cannot sell their home without taking a loss,” the regulator said. “Previously, many service members felt their only option was either to maintain financial obligations on two residences or to default on their mortgage.”
Freddie noted in its own statement that permanent change of station orders will be considered a hardship for the purpose of qualifying borrowers for a short-sale. Such events are already considered hardships in qualifying for a loan modification or forbearance.
A statement from Fannie indicated that it had already issued servicer guidance in October clarifying that permanent change of station orders can qualify military borrowers for foreclosure prevention alternatives like modifications or forbearance plans.
FHFA said it will issue guidance by Sept. 30 that will be effective 60 days later.
The CFPB said in a statement that the joint guidance addresses mortgage servicer practices that might pose risks to borrowers who are serving in the military. Roughly a third of active-duty servicemembers each year receive permanent change of station orders — which are not negotiable and leave servicemembers little time to comply. The orders can result in lower housing allowances or the loss of a spouse’s income.
“This guidance provides specific notice to mortgage servicers that this country already has substantial laws in place to help military members in this still-recovering housing market,” CFPB Director Richard Cordray said in the announcement.
Servicers could be subject to enforcement actions if they don’t comply with the guidance.
