Freddie Mac Single-Family Seller/Servicer Guide 9208.1 — Short sale eligibility, Borrower requirements and approval

This section contains information related to: ■ What is a short sale? ■ Short sale eligibility requirements and Servicer approval authority ■ Borrower documentation for a short sale ■ Short sale Borrower contributions and relocation assistance (a) What is a short sale? A Freddie Mac Standard Short Sale (“short sale”) is the sale of the Mortgaged Premises for less than the total amount necessary to satisfy the Mortgage. When the sale proceeds are less than the total amount due but there is a mortgage insurance claim payment or a Borrower cash contribution that results in Freddie Mac’s receiving all sums owed on the Mortgage, then Freddie Mac considers the transaction a “make-whole” preforeclosure sale rather than a short sale. The Servicer does not need to obtain Freddie Mac’s prior approval for a make-whole preforeclosure sale. Note: Refer to Section 9208.3(a) for Freddie Mac’s reporting and closing requirements for a make-whole preforeclosure sale. (b) Short sale eligibility requirements and Servicer approval authority If the Borrower’s eligible hardship is permanent or long term and the Borrower is unable or unwilling to sustain homeownership, then the Servicer should determine if the Borrower meets the eligibility requirements for a short sale. The Servicer must evaluate the Borrower for a short sale under this chapter once the Servicer has otherwise complied with the evaluation hierarchy in Section 9201.2. If the Mortgage is subject to a recourse or indemnification agreement, the Servicer may approve a short sale provided the Servicer reports and Freddie Mac drafts a full payoff to Freddie Mac and the Servicer absorbs any losses and expenses related to the Delinquency. If the Mortgage is an FHA, VA or Guaranteed Rural Housing Mortgage, the Servicer must comply with the requirements of the applicable agency when approving a short sale in a manner that ensures continued coverage of the Mortgage. The Servicer must use the Borrower’s Delinquency status to determine eligibility, documentation requirements and Borrower contributions. The Servicer determines the Delinquency status at the time of evaluation for eligibility and Borrower contribution in accordance with the following: ■ When determining eligibility in accordance with this section, the Servicer must use the Delinquency status of the Mortgage on the date the Servicer begins the evaluation using required documentation pursuant to Section 9208.1(c) ■ When the Servicer’s evaluation for eligibility did not include a review of a purchase offer, the Servicer must evaluate the Borrower for a contribution, if applicable, once the purchase offer is received. The Servicer must determine the Delinquency status of the Mortgage when beginning the review of the purchase offer. If the credit report is now greater than 90 days old from the date of initial evaluation for eligibility, the Servicer must order a new credit report. (i) Eligibility requirements for a short sale Every Borrower, regardless of Delinquency status, is eligible to be considered for a short sale, provided the following requirements are met: ■ Borrowers who do not meet the requirements for a Streamlined Short Sale (as defined in Section 9208.1(c)(i)(A)) must be experiencing or have experienced one of the eligible hardships listed in Section 9202.1(b) ■ The sale must be an arm’s length transaction as defined in Section 9208.2(c) ■ The Borrower has listed the Mortgaged Premises for sale with a licensed real estate broker who in turn must have listed the Mortgaged Premises on the Multiple Listing Service (MLS) covering the market in which the Mortgaged Premises is located for at least five consecutive days. The listing requirements are as follows: ❑ The listing period must include at least one weekend (i.e., Saturday and Sunday) ❑ The listing must be in an “active” status for at least the five days immediately preceding the day on which the purchase offer is accepted by the Borrower and submitted to the Servicer for approval ❑ If the Mortgaged Premises is located in an area that is not covered by an MLS, then it must be advertised for sale by the real estate broker in a manner customary for that real estate market at least five consecutive calendar days, which must include at least one weekend ❑ The Servicer must retain a copy of the MLS listing of the Mortgaged Premises in the Mortgage file (or documentation of the advertisement(s) if the Mortgaged Premises is located in an area not covered by an MLS). The Borrower may not act as the listing agent or attempt to sell the Mortgaged Premises without a licensed real estate professional. ■ The Borrower has not acquired a new Mortgage in the six months preceding the Borrower’s Delinquency or, if the Borrower is current, in the six months preceding the evaluation of the Borrower for a short sale. The Borrower is only permitted to have obtained a new Mortgage if the Borrower’s eligible hardship was distant employment transfer. ■ The Borrower must not have entered into a program or arrangement where a third party takes title to the Mortgaged Premises and arranges a short sale in exchange for a fee A Borrower who is current or less than 60 days delinquent must meet the imminent default requirements as described in Section 9208.1(c)(iii). (ii) Servicer approval authority Unless otherwise notified by Freddie Mac, all Servicers are delegated to approve a short sale that meets the eligibility requirements of Section 9208.1(b)(ii). Additional circumstances servicers are not delegated to approve short sale Topic Guide location Short sales Section 8801.3(c) Borrower documentation for a short sale Section 9208.1(c) Short sale Borrower contributions and relocation assistance Section 9208.1(d) Property valuation and minimum net proceeds for short sales Section 9208.2(a) Communication timelines for short sales Section 9208.2(b) Short sale transactions and processing requirements Section 9208.2(c) (iii)Submitting a short sale recommendation to Freddie Mac For situations where the Borrower does not meet the eligibility requirements for a short sale and the Servicer determines a short sale may be the best option for addressing the Delinquency or imminent Delinquency, the Servicer must use Resolve® to submit a recommendation to Freddie Mac for review with the following required documentation: 1. Complete Borrower Response Package or other documentation as permitted in Section 9208.1(c) 2. A copy of the fully executed sales contract on the Mortgaged Premises, with addenda, stating that it is being purchased in “as-is” condition. If the buyer obtains FHA, RHS or VA financing, then the contract does not need to include the “as-is” condition if the FHA, RHS or VA requires the condition to be removed. 3. Preliminary Settlement/Closing Disclosure Statement 4. For Mortgages secured by properties subject to resale restrictions (in accordance with Chapter 4406, 4502 or 4504, as applicable), the applicable resale restrictions containing details on the property valuation and/or the restricted resale price as well as any other terms and conditions that must be met 5. For Cooperative Share Loans, the additional documentation listed in Section 8801.5(c)(i) In addition, the Servicer may submit a recommendation to Freddie Mac for consideration if the Borrower does not have an eligible hardship but one of the following conditions exists and, in the Servicer’s judgment, the short sale is an appropriate resolution to the Delinquency: ■ There is a Risk of Property Ownership to Freddie Mac (see Section 9202.2(b)) ■ Litigation is pending that affects the Mortgaged Premises or the Mortgage and could jeopardize a successful foreclosure sale ■ Other special circumstances (e.g., the Mortgaged Premises deteriorated resulting in an unexpected decline in the value) Note: All non-delegated short sales submitted through Resolve will be available for review in the Resolve dashboard. (c) Borrower documentation for a short sale (i) Borrower documentation In addition to the requirements below, all Borrowers must provide the Servicer a copy of the fully executed sales contract with any addenda and the preliminary Settlement/Closing Disclosure Statement once those documents are available.

(A) Borrower documentation requirements for a short sale Borrower documentation requirements for a short sale by Delinquency status If the Mortgage Delinquency status at of the time of evaluation is… The Servicer must… Current or less than 90 days delinquent Evaluate the Borrower based on a complete Borrower Response Package as defined in Section 9102.5. Note: If the Mortgage is current or less than 60 days delinquent, the Servicer must determine that the Borrower’s monthly payment is in non-retention imminent default in accordance with Section 9208.1(c)(iii)(A). Between 90 days and 18 months delinquent Evaluate the Borrower based on a complete Borrower Response Package, unless one of the following conditions applies: ■ The Borrower failed a Freddie Mac Flex Modification® Trial Period Plan within the 12 months prior to evaluation for a short sale or deed-in-lieu of foreclosure ■ The Borrower previously received a Freddie Mac Flex Modification and became 60 days or more delinquent within the first 12 months of the effective date of the modification without curing the Delinquency ■ The Borrower previously completed three or more modifications; or ■ The Borrower received a forbearance plan as a result of a hardship due to their Mortgaged Premises or places of employment being located in an Eligible Disaster Area or COVID-19 and became 90 days or more delinquent prior to the evaluation for a short sale; or ■ The Mortgage is not secured by an Investment Property, as identified at origination, and the Borrower’s Credit Score is less than or equal to 620 In these cases, the Servicer must evaluate the Borrower for a Streamlined Short Sale or Streamlined Deed-in-Lieu of Foreclosure. Greater than 18 months delinquent Evaluate the Borrower for a Streamlined Short Sale. A Streamlined Short Sale is a Standard Short Sale where the Servicer is not required to obtain the Borrower Response Package or to verify an eligible hardship. If the debt secured by the Mortgaged Premises has been discharged in a bankruptcy proceeding filed pursuant to Chapter 7 of the U.S. Bankruptcy Code, the Borrower is eligible for a short sale evaluation regardless of delinquency, occupancy or property type and without requiring a Borrower Response Package. The Borrower must provide the Servicer a copy of the order and accompanying documents showing that the debt was discharged. The Servicer must retain those documents in the Mortgage file.

(C) Cash Reserves test The Servicer must complete an evaluation of the Borrower’s Cash Reserves. The Borrower must have Cash Reserves of less than $25,000 to be further evaluated for imminent default. If the Borrower either discloses or provides documentation indicating the Borrower has Cash Reserves equal to or greater than $25,000, then the Borrower is not in imminent default. (I) Definition of Cash Reserves For purposes of determining imminent default, Cash Reserves are defined as follows: Cash Reserves: Any non-retirement liquid asset the Borrower has available for withdrawal from any financial institution or brokerage, including funds on deposit in the Borrower’s checking, savings, money market or certificate of deposit account or other depository account, stocks, bonds, mutual funds, U.S. government securities and other securities that are traded on an exchange or marketplace generally available to the public (e.g., New York Stock Exchange, National Association of Securities Dealers Automated Quotations, Midwest SE, Chicago Board of Trade or Over the Counter) for which the price can be readily verified through financial publications. Assets are only considered retirement assets if they are held in a qualified retirement account such as a 401k, 403b, 457, Individual Retirement Account or pension fund. If the assets are not held in a retirement account, the assets must be considered Cash Reserves. (II) Calculating Cash Reserves The Servicer must calculate the Borrower’s Cash Reserves in accordance with the following requirements: 1. The Servicer must determine that, for every Borrower on the Mortgage, all of the Borrower’s Cash Reserves have been accounted for on Form 710, Mortgage Assistance Application 2. In making the determination that all Cash Reserves have been accounted for, the Servicer must review all information provided by the Borrower to determine if the asset information stated on Form 710 is reasonably consistent with information available from all other information provided by the Borrower, including verbal information shared by the Borrower. If there are inconsistencies between the Borrower’s disclosure of assets and the information provided by the Borrower, then the Servicer must obtain the Borrower’s tax return or tax transcript in order to reconcile the inconsistencies. If, upon reviewing the Borrower’s tax return or tax transcript, if applicable, the Servicer observes interest, dividend income or gains/losses that, in total, could not be reasonably produced by the Borrower’s disclosed Cash Reserves, and such income indicates deposits, securities holdings or other assets could be in excess of the amounts disclosed by the Borrower on Form 710, the Servicer must reconcile the inconsistency with the Borrower. The Servicer must require the Borrower to produce a signed federal tax return and all relevant schedules, in the event the Servicer used a tax transcript in lieu of a tax return, along with any other relevant documentation that verifies the disposition and/or current status of those assets, which produced the income or gains/losses to resolve the inconsistency. The Servicer must ensure that the Borrower’s disclosure of assets is reasonably accurate despite the inconsistency between the disclosed assets and the income or gain/loss from assets reported on the tax return or tax transcript. In determining what documentation is needed to reconcile an inconsistency, the Servicer must review the detailed tax return schedules and forms and request from the Borrower copies of recent and past statements from those asset holdings or transactions indicated on the schedules and forms that produced the income or gain/loss (e.g., checking, savings, brokerage account statements, asset sale statements or records). 3. If there are inconsistencies between the Borrower’s disclosure of assets and the tax return information that cannot be reconciled, the Borrower cannot be considered in imminent default. If the Servicer determines that the Borrower has Cash Reserves of less than $25,000 and meets all other requirements of Section 9208.1(c)(iii), then the Borrower is considered to be in imminent default.

(D) Imminent Default Credit Score Servicers must choose one Credit Score that is adequately indicative of the credit reputation of all Borrowers currently on the Mortgage. Servicers must use a Credit Score based on the credit-scoring model. This score must be obtained and determined in accordance with the requirements below. (I) Obtaining Credit Scores for each Borrower The Servicer must request a Credit Score for each Borrower on the Mortgage from any one of the following three credit repositories: ❑ Equifax Credit Information Services ❑ Experian Information Systems and Services ❑ TransUnion Credit Information Company The Borrower’s Credit Score must be less than 90 days old on the date the Servicer performs the imminent default evaluation. (II) Borrowers with no available Credit Score It is unusual for any Borrower who has obtained a Mortgage not to have a Credit Score. If no single Credit Score can be identified for a Borrower, the Servicer must recheck the information provided when ordering the Credit Scores and resubmit a request. If the Servicer is still unable to obtain a Credit Score for that Borrower, it may rely on the Credit Scores of all other Borrowers as determined in accordance with this section. Absent a Credit Score for any Borrower on the Mortgage, the Borrower may not be determined to be in imminent default under the requirements of business rule 2, and the Servicer must proceed to evaluate the Borrower under the requirements of business rule 3 in Section 9208.1(c)(i). In such instances when a Credit Score is not available for any Borrower on the Mortgage, the Servicer must: 1. Maintain documentation in the Mortgage file that demonstrates the Servicer’s attempts to obtain Credit Scores from all three credit repositories on all Borrowers 2. Enter the result that a Credit Score is not available for any Borrower on the Mortgage into Resolve 3. Proceed to the Imminent Default Hardship test in business rule 3 to determine if an Imminent Default Hardship exists (III) Determining the Imminent Default Credit Score The Servicer must identify the Imminent Default Credit Score in accordance with the following: ❑ The Servicer must first select a single Credit Score for each Borrower on the Mortgage. If the Servicer obtains multiple Credit Scores for a single Borrower, the Servicer must use the middle/lower method to select the single Credit Score for that Borrower. This method is the most predictive when determining a single Borrower’s overall credit reputation. If three Credit Scores are obtained for a Borrower, the single score for that Borrower is the one with the middle value. For example, if the Credit Scores were 660, 656 and 640, the single Credit Score selected by the Servicer should be 656. When there is a duplicate score, the Seller must select that score to be the single score. If the Credit Scores for a Borrower were 660, 660 and 640, the Servicer should select 660. If two Credit Scores were obtained for a Borrower, the Servicer must select the lower of the two Credit Scores to be the single Credit Score for that Borrower. ❑ If there is only one Borrower on the Mortgage, the single Credit Score, determined in accordance with the above requirements, is considered the Imminent Default Credit Score ❑ If there are multiple Borrowers on the Mortgage, the Servicer must determine the single Credit Score for each Borrower using the method described above. The Servicer must then select either the lowest Credit Score across all Borrowers on the Mortgage or the average Credit Score from all Borrowers’ single scores. (Note: Whichever method is used, the Servicer should choose the single Credit Score using the same method and procedure for all Borrowers and for all Mortgages consistent with fair lending laws.)

(E) Calculating housing expense-to-income (HTI) ratio The Servicer must input verified income data into Resolve. Based on the Servicer’s input, Resolve will determine if the Borrower’s HTI ratio is greater than 40%. For purposes of this determination, the Borrower’s current monthly housing expense is divided by the Borrower’s monthly gross income (or the Borrowers’ combined monthly gross income in the case of co-Borrowers) plus any allowable non-obligor household income. The Borrower’s current monthly housing expense consists of the following, as applicable: ■ Monthly principal and interest payment ■ Monthly pro rata amount for real estate taxes ■ Monthly pro rata amount for property or flood insurance ■ Monthly pro rata amount for homeowners association (HOA) dues, Condominium Unit or Cooperative Unit Maintenance Fees and ground rent ■ Any escrow shortage currently included as part of the monthly contractual payment If the Borrower has been granted interest rate relief under the Servicemembers Civil Relief Act (SCRA), the Servicer must use the principal and interest payment and the contractual rate of interest in effect on the Note prior to the granting of the SCRA relief rather than the temporarily SCRA-reduced interest rate and related SCRA monthly payment when calculating the Borrower’s current monthly HTI ratio. If a Borrower has indicated that there are condominium/HOA or Cooperative Corporation assessments (see Chapter 8801 for special Servicing requirements for Cooperative Share Loans), Condominium Unit maintenance fees or Cooperative Unit Maintenance Fees or ground rents but has not been able to provide written documentation to verify these amounts, the Servicer must rely on the information provided by the Borrower if the Servicer has made reasonable efforts to obtain the amounts in writing. The current monthly housing expense does not include mortgage insurance premium payments or payments due to holders of subordinate liens. Based on the information provided by the Servicer, Resolve will calculate the Borrower’s HTI ratio and determine if it meets the imminent default requirements under business rule 2.

(F) Payment history Based on the information provided by the Servicer, Resolve will review the Borrower’s payment history and determine if it meets the imminent default requirements under business rule 2.

(G) Imminent default evaluation results If the Borrower meets the requirements of business rule 1 and meets the requirements of either business rule 2 or business rule 3, the Borrower is in imminent default. The Servicer must evaluate the Borrower for a short sale and no further analysis is required by the Servicer to determine imminent default.