Fannie Mae is testing a new program to stave off foreclosures by preapproving 'short sales' of homes, in which mortgage companies allow homeowners to sell houses for less than the value of existing loans, forgiving the difference.

As the number of homeowners in default on their mortgages began to rise several years ago, real-estate agents started touting short sales as a way for troubled borrowers to sell their homes quickly to potential buyers looking for bargains. Real-estate agents reasoned that banks and mortgage companies would go along with short sales, because they tended to lose less money in the transactions

Wall Street Journal