Fannie Mae and Freddie Mac have agreed to allow military members who are ordered to switch bases and who are still current on their mortgages to sell their homes through a short sale — one in which the homeowner sells the home for less than the outstanding mortgage amount.
The regulator for the government-controlled mortgage companies, the Federal Housing Finance Agency, said Thursday it made the decision because military orders to transfer base have forced military members into difficult financial straits. Many are forced to keep two homes or default on their loans.
Under the new policy, a military order to transfer bases would be considered a hardship that qualifies for a short-sale approval. As a result, borrowers will be allowed to sell their homes for less than the outstanding mortgage amount without having missed mortgage payments. The new rules impact homes purchased before June 30.
“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction,” said Edward DeMarco, acting director of the housing regulator, in a prepared statement.
The move by Fannie and Freddie came as financial regulators said they are prepared to take action against banks and other mortgage servicers that don’t give the proper help to military homeowners forced to move to a new duty location, a warning shot meant to help prevent relocating service members from defaulting on their loans.
Citing concerns about misleading or abusive practices, the group of regulators — which includes the Consumer Financial Protection Bureau, the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency — issued guidance to ensure that mortgage servicers comply with consumer-protection laws that apply to service members ordered by the military to relocate to a new location.
Servicemembers who receive so-called Permanent Change of Station orders often must move quickly, and their household income may drop if the servicemember can’t find a renter willing to pay a price that will cover the mortgage payment. Service members also can face reduced income if the spouse can’t immediately find a job in the new location.
“Those who serve our country deserve to be given the best service by their mortgage servicer,” said Consumer Financial Protection Bureau Director Richard Cordray.
Orders to relocate, known in military parlance as Permanent Change of Station orders “can complicate a servicemember’s homeownership decisions in ways that civilians may not experience,” Mr. Cordray noted.
The federal agencies said military homeowners face unique challenges and need timely information about their loan-modification and short-sale options in order to avoid defaulting on their loan obligations.
Article courtesy of The Wall Street Journal