Starting November 1, 2012, if you loan is serviced by Fannie Mac or Freddie Mac, you will not have to receive approval from the mortgager insurer to proceed with a short sale. Typically, if a homeowner purchases a home and their down payment is less than 20% of the fair market value of the property, the homeowner is required to purchase private mortgage insurance. The private mortgage insurance provides a safety net to the lender in the case of default. If a homeowner defaults on a mortgage, the lender could seek insurance proceeds to cover a portion of this loss from the private mortgage insurance. As a result of this ability to collect insurance proceeds from the private mortgage insurer in the event of a default, mortgage insurers had the authority to deny a short sale. However, starting November 1, 2012, under new short sale guidelines for all loans serviced by Fannie Mac and Freddie Mac, mortgage insurers will allow a short sale or deed in lieu without their approval. What this means is one less step in the short sale process, which hopefully will lead to faster closings.
-Randy M. Creighton
