“Your Graceful Exit”

Good video about short sales and deed in lieu from the US Govt.  See posts below on taking the survey to see if you qualify for the new Govt Short Sale Program (HAFA).

The latest on the new HAFA program for short sales from the Calculated Risk blog….

More: Short Sales and 2nd liens

by CalculatedRisk on 3/10/2010 12:10:00 PM

This is a follow up on the previous post on short sales and 2nd liens. (the previous post had excerpts from the NY Times, Short-Sale Program to Pay Homeowners to Sell at a Loss and WSJ Home-Saving Loans Afoot)

Just to be clear on what subordinate lien holders will receive under a HAFA short sales - from Treasury’s HAFA program Short Sale Agreement:

Subordinate Liens. We will allow up to three percent (3%) of the unpaid principal balance of each subordinate lien in order of priority, not to exceed a total of $3,000, to be deducted from the gross sale proceeds to pay subordinate lien holders to release their liens. We require each subordinate lien holder to release you from personal liability for the loans in order for the sale to qualify for this program, but we do not take any responsibility for ensuring that the lien holders do not seek to enforce personal liability against you. Therefore, we recommend that you take steps to satisfy yourself that the subordinate lien holders release you from personal liability.

So on a $50,000 2nd lien, the holder of the lien will be offered up to $1,500 to sign off on the deal and release the borrower from personal liability. The HAFA program will reimburse the 1st lien holder one third of that amount, or up to $500.

Investor Reimbursement for Subordinate Lien Releases. The investor will be paid a maximum of $1,000 for allowing a total of up to $3,000 in short-sale proceeds to be distributed to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each three dollars an investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of reimbursement. To receive an incentive, subordinate lien holders must release their liens and waive all future claims against the borrower….

I expect that most 1st lien holders will be willing to pay this amount to the 2nd lien holder. But would a $50,000 2nd lien holder be willing to sign off for only $1,500?

It really depends on the financial situation of the borrower, and probably on the likelihood of personal bankruptcy. In most cases the 2nd lien holder can probably do much better by selling the lien to a collection agency.

Although I think the HAFA program will help with short sales (and deed-in-lieu transactions), this will not solve the 2nd lien problem. Foreclosure may still be the servicers’ option of choice for borrowers with subordinate liens.

Credit Suisse Recast Chart

It is entirely possible that the housing crisis in Palm Beach County could keep going straight through the end of 2012 according to the new chart from Credit Suisse. The number of Arm, Option Arm, and Alt A loans that will reset in 2010, 2011, and 2012 is enormous. Many of these homes are too far underwater to refinance, and no government intervention short of massive principal forgiveness will help.  Over $1.4 Trillion of loans nationwide will recast in the next 3 years.

As long as interest rates stay extremely low, the recasts may not be that bad, but as soon as rates start moving up…even a little…watch out. Expect a continuation of short sales and foreclosures for the next few years.

Below is a great article by Paul Owers of the Sun Sentinel about the new government short sale rules coming out in April. Every six months or so, the government will ‘do something’ to try and improve the (long) short sale process that so many people complain about.

Its common knowledge that certain banks take to long to respond to offers, plus the investors who own the loans may also take to long to respond, etc, so the government wants to do something by requiring a 10 day deadline to respond to offers…sounds great but we’ll have to wait and see if these rules actually work in the real world. I tend to agree with the statement in the article that the rules have no teeth to them, plus there could be legal issues with the investors involved.

Of course I hope these new rules will work, but I remain sceptical. Everything the government has tried so far has either not worked or been ignored by the banks. Meanwhile short sales are still closing the old fashioned way, they just seem to take forever and a day sometimes. Stay tuned.

Short sale rules could speed lender decisions

By Paul Owers, Sun Sentinel

Homeowners stuck while banks mull whether or not to approve short sales could benefit from new federal guidelines that give lenders a 10-day limit to respond to offers.

The rules from the U.S. Treasury, which also allow for financial incentives to sellers and lenders, likely will figure prominently in South Florida, as the housing slump meanders into a fifth year.

“The cloud could be lifted,” said Domenic Faro of the Fort Lauderdale Real Estate firm. “This could bring us back to some normalcy.”

Still, questions linger. Some real estate agents doubt the guidelines will be enforced, while bankers wonder whether 10 business days is enough time to reply to offers.

In a short sale, the homeowner unloads the property for less than what’s owed on the mortgage, and the lender forgives the difference. Nearly half of the roughly 838,000 single-family mortgage holders in Palm Beach, Broward and Miami-Dade counties are “under water,” meaning they owe more than their homes are worth, according to third-quarter data from Zillow.com, a Seattle-based real estate firm.

While short sales are considered an ideal solution for banks and for “underwater” homeowners on the verge of foreclosure, the deals often drag on as lenders take weeks or months to decide what to do.

Frustrated buyers walk away during the delays. In some cases, lenders insist that borrowers share in the financial loss, holding up the transactions even longer. As a result, homes stay on the market, prolonging the housing downturn.

Aside from imposing a 10-day deadline, the Treasury rules call for sellers to receive $1,500 moving allowances, and the sellers will not be on the hook for repayment of any debt.

Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to less senior lenders.

The 83 loan servicers participating in the Obama Administration’s Home Affordable Modification Program, including Bank of America and JPMorgan Chase, are required to follow these guidelines for all borrowers who request short sales or who did not complete loan modifications.

The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which represent about half of all U.S. mortgage debt. The two government-run mortgage companies are working to finalize their own guidelines.

The Treasury plan, which must be implemented by lenders no later than April, is meant to help sellers like Dawn Sclafani, who has been waiting since October for her lender to approve a short sale offer on her Margate home. A buyer has offered $155,000, and she owes $233,000.

Sclafani, a 50-year-old psychologist, said she’s eager for the bank to approve the deal so she can put the experience behind her.

“I want to move on … but I can’t until somebody gives me permission to,” she said. “I’ve heard that this is a horrendous process. The banks are just not very cooperative. I do believe these new rules will help.”

U.S. Rep Ron Klein, D-Boca Raton, agrees, saying the guidelines are meant to make short sales “a more usable tool.” Klein points out the rules provide standardized paperwork for all short sales and give buyers and sellers a more reasonable time frame for whether or not the sales will happen.

But Klein and others say the government may have to increase the financial incentives. The $3,000 cap on short sale proceeds is not sitting well with second lien holders, who have been demanding more money from sellers, the first lenders and real estate agents in exchange for releasing their claims and allowing the short sales to proceed.

“This is a great program if all these mortgages had only one lien holder,” said Travis Hamel Olsen, chief operating officer for Loan Resolution Corp., an Arizona company that helps lenders complete short sales. “But many of these properties have two liens.”

Meanwhile, some local real estate agents remain skeptical of the guidelines.

Broward Countyagent Ron Rosen, who urged Klein last summer to push for new regulations, said he thinks “the banks will still play their little games with people and make life difficult for everyone.”

Edward Goldfarb of RE/MAX PowerPro Realty in Davie doubts the Treasury will enforce the new rules. “There’s no teeth to them,” he said.

A spokeswoman for the Treasury says it will hand down “substantial” penalties to lenders that don’t comply. The agency said it can fine lenders, withhold or reduce incentive payments and require improperly rejected loans to be modified.

Lenders have blamed short sale delays on the complicated nature of the transactions, sheer numbers of deals and on borrowers who don’t submit proper paperwork in a timely manner.

Because short sales involve so many moving parts, lenders will be hard-pressed to meet the 10-day deadline, said Anthony DiMarco, executive vice president of government affairs for the Florida Bankers Association.

“That will be a challenge,” he said.

In many cases, the banks are not to blame for the delays, said Ward Kellogg, chief executive of Boca Raton-based Paradise Bank. But he thinks the guidelines are necessary to help clear the market of so many distressed properties.

“I think the pressure on (the banks) is a good thing,” Kellogg said.

Paul Owers can be reached at Powers@Sunsentinel.com or 5

As predicted well over 2 years ago…short sales may become the de-facto solution for mortgage servicers. It makes sense. The Next step?

We expect to see the government ‘encourage’ the servicers/ banks to outsource their short sales to them. In other words, we expect that an FHA arm will be processing short sales by this time next year. Considering that the FHA ‘owns’ close to 70% of all existing mortgages it makes sense that they will want to process their own short sales. Will this make the process faster and smoother? We think so.

Source: HousingWire.com

The mortgage servicing industry in coming weeks will see details of an incentive program aimed to prevent foreclosures by encouraging servicers to pursue short sales and deeds-in-lieu of foreclosure.

US Treasury Department sources confirmed to HousingWirethe Treasury expects to issue details on the short sale and deed-in-lieu program later this month.

The program is being finalized and will be announced as soon as possible, according to testimony Wednesday by Federal Housing Administration (FHA) commissioner David Stevens.

He said at a House Financial Services subcommittee hearingthat the Making Home Affordable (MHA) Program is on track to provide modifications and refinancings to millions of homeowners, but noted other foreclosure alternatives exist.

“Because we know that the MHA program will not reach every at-risk homeowner or prevent all foreclosures, on May 14th the Administration announced the Foreclosure Alternatives program that will provide incentives for, and encourage, servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure in cases where the borrower is generally eligible for a MHA modification but does not qualify or is unable to complete the process,” he said, according to prepared remarks.

He said the program will simplify the process of pursuing short sales and deeds-in-lieu, which will encourage more servicers and borrowers to participate in the program. The program will standardize the process, documentation and short performance timeframes.

“These options eliminate the need for potentially lengthy and expensive foreclosure proceedings, preserve the physical condition and value of the property by reducing the time a property is vacant, and allows the homeowners to transition with dignity to more affordable housing,” Stevens added.

Distressed sales — including short sales and foreclosures — accounted for nearly one-third of all house re-sales in recent months, leading to the National Association of Realtorsto offer a short sales and foreclosure certification program to realtors.

 

From our favorite CNBC Real Estate Reporter Extraordinaire….Diana Olick….

You’ve probably never heard of it; I know I hadn’t until I read a New York Times article about it a few months ago, but think of it like that enormous warehouse you see at the end of “Raiders of the Lost Ark”, where important artifacts and documents go to die.

Then think of your home mortgage as the lost ark. It’s called MERS, short for Mortgage Electronic Registration Systems, and it is the keeper of your loan. Nope, not your bank, lender, broker, investor, but Virginia-based MERS.

In order to save tons of cash on all the legal mumbo jumbo involved in documenting your loan and how it gets bought and sold and traded, lenders hire MERS, which is a private database, emphasize private. It is currently used by about 3,000 financial services firms.

Since MERS is the final resting place for loans, it is also the name on the foreclosure documents. As the foreclosure crisis deepens, savvy lawyers are helping borrowers avoid foreclosure by demanding to know who owns the loan in question. Judges want to know as well, but MERS wouldn’t or couldn’t say…until now.

This week MERS unveiled a new program that will “inform 60 million borrowers of changes to the owner of their loan.” Why? Well they had to. Under the “Helping Families Save Their Homes Act of 2009,” signed by President Obama, the “Truth in Lending Act” was amended to require that when a loan is sold, transferred or assigned, the new owner of the loan must notify the borrower in writing within thirty days.

“We are excited to support Congress and the Obama Administration’s efforts to help distressed borrowers stay in their homes,” said R.K. Arnold, MERS President and CEO in a press release. “This program will be another tool for the real estate finance industry and the Administration’s efforts to bring greater transparency and accountability to the mortgage lending process.”

I call that progress.

MAKING HOME AFFORDABLE PROGRAM - New details released on the Obama Administration’s MHA program

Short sales are complex transactions involving careful coordination and close cooperation among a number of parties — servicers, appraisers, borrowers, purchasers, real estate brokers, title agencies, and often mortgage insurance companies and junior lien holders. A short sale usually provides a better outcome for borrowers, investors and communities, but because of the complexity and time involved, servicers have often opted to pursue foreclosure instead, even where a short sale would have provided a substantially better outcome for everyone involved. The Making Home Affordable (MHA) Program provided additional details yesterday on its plan to stabilize the US housing market and prevent avoidable foreclosures, and it is good news for short sales. The foreclosure alternatives for borrowers eligible for MHA include:
- A Short Sales/Deeds-In-Lieu Program to Facilitate Foreclosure Alternatives
- Incentives for servicers to pursue alternatives to foreclosures
- Borrower incentives to cover relocation expenses to homes that are affordable
- Streamlined process combining short sales and deed-in-lieu transactions
The Foreclosure Alternatives program will provide incentives for servicers and borrowers to pursue short sales in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. It provides a standard process flow, minimum performance timeframes, and standard documentation, and offers financial incentives to servicers and borrowers. Fourteen servicers, including the five largest, have now signed contracts and begun modifications and refinancings under MHA, and including both these servicers and Fannie Mae or Freddie Mac, more than 75 percent of all loans in the country are now covered by the MHA program.

Further details on short sales and the MHA
When a borrower meets the eligibility requirements for a Home Affordable Modification (HAMP) but does not qualify for a modification or cannot maintain payments during the trial period or modification, the MHA) Program recommends a short sale to avoid the foreclosure process. This helps the borrower sell a property for less than the amount owed, helps the lender avoid the costs of foreclosure, and helps you get properties at bargain basement prices. I’m going to deviate from the usual format today by posting all the details straight from a US Treasury Department News Release:

How The Home Affordable Short Sale/DIL Program Works:

- Borrower Eligibility. Borrowers will be eligible for the Foreclosure Alternative Program if they meet the minimum eligibility criteria for a Home Affordable Modification but did not qualify for a modification or were unable to sustain payments under a trial period plan or a modification. Prior to proceeding to foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor’s recovery through foreclosure Incentive Payments.

- Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.

- Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.

- Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.

- Standardized Documentation: The program will publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter. These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear timeframes for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.

- Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.

- Minimum and Maximum Duration: Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions. The property must be listed with a licensed realtor experienced in selling properties in the neighborhood. Marketing of the property may run concurrently with the foreclosure process, however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property. There will be a maximum marketing period of 1 year for the property, provided any longer period not otherwise delay foreclosure sale, to ensure diligence by servicers and borrowers in moving as quickly as possible to complete the short sale and deed-in-lieu process.

- Selling Commissions and Fees: Reasonable and customary real estate commissions and selling costs that may be deducted from the sales price will be specified in the Short Sale Agreement. The Servicer will agree not to negotiate a lower sales commission after an offer has been received.

- Fees and Charges: Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.

- Property Eligibility: Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.

- Program Expiration: Eligible borrowers will be accepted until December 31, 2012. Program payments will be made upon successful completion of a short sale or DIL.

- Deed-in-Lieu: At the servicer’s option, the Short Sale Agreement may include a condition that the borrower agrees to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time specified in the Agreement or any extension thereof. In this case the borrower would have 30 days to vacate the property and would be entitled to $1,500 to assist with relocation expenses, in addition to any other funds the servicer may provide to the borrower.

This home was purchased in 2005 for $202,000.  The seller had two loans to negotiate, with the 2nd proving to be a bit of a sticking point.  After losing 2 potential buyers to time constraints, the 3rd lucky buyer ended up purchasing the home for $150,000 with 4% seller concessions thrown in.  Many times in short sales we are seeing the 2nd loans become the sticking points for closing deals.  Typically, the 1st offer (buyer) on a short sale needs to have quite a bit of patience if there is more than one lender involved (or if that lender’s name is Countrywide).