February 1, 2010

Fannie Mae Offers Subsidy for REO Purchases

Fannie Mae says it will cover the closing costs on purchases of its REO homes – an incentive the GSE hopes will help it pare down a bloated supply of repossessed foreclosed properties.

The nation’s largest mortgage financier has announced a temporary seller-assistance program under which people purchasing a property through HomePath, Fannie Mae’s REO disposition operation, will receive up to 3.5 percent of the final sales price, which can be applied toward closing costs or used to purchase appliances for their new home.

The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010, the company said. In addition, many Fannie

Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, with as little as 3 percent down.

“Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover,” said Terry Edwards, EVP of credit portfolio management for Fannie Mae. “Many families are taking advantage of the federal homebuyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help.”

Recent data from Fannie Mae show an increase in the acquisition of foreclosed properties and an escalating rate of seriously delinquent loans, which means even larger volumes of REOs could be coming down the pipeline.

According to the GSE’s most recent quarterly filing, Fannie Mae acquired 98,428 homes through foreclosure during the first nine months of last year and sold 89,691 REO properties during the same period. But at the end of September, Fannie Mae still had 72,275 REO properties on its books, marking a 7 percent increase year-over-year.

Furthermore, Fannie Mae’s monthly summary shows significant growth in seriously delinquent single-family mortgages held or guaranteed by the company. Up from 2.13 percent in November 2008, loans three or more months behind in payments or in the foreclosure process soared to 5.29 percent in November 2009.

January 31, 2010

Equator Now Accepting Agent-Initiated Short Sales

Equator, a technology provider for the default servicing industry headquartered in Los Angeles, California, has announced the launch of its new agent-initiated short sale feature. The new feature gives agents the ability to request a short sale on behalf of their homeowner clients, initially bypassing the lender to open up the process on their own.

“Traditionally, requesting a short sale meant borrowers had to call their lender, which was often a time-consuming process,” explained Chris Saitta, CEO of Equator. “Agents can now provide the additional service of requesting a short sale directly through Equator.”

Saitta says agent initiation makes the progression easier for both the borrower and the lender, and brings short sales to fruition in dramatically less time.

“Equator’s solution provides a borrower self -service portal where borrowers can upload financials and receive real-time status updates,” Saitta said. “It automates every step of the lender’s internal process facilitating valuation and approvals while monitoring the eventual sale.”

Saitta says many of the industry’s top lenders and servicers are either using or adopting Equator’s short sale solution, and the system has already started accepting agent-initiated short sales for a large national lender.

“Short sales are a great alternative to foreclosures, but without a comprehensive automation solution many have simply avoided them,” Saitta explained. “Equator’s platform removes these barriers to entry and allows everyone to realize the benefits of short sale.”

Lenders have the option to enable the new agent initiation feature. According to Saitta, agent initiation helps lenders by lowering their call volumes and involving their decision-makers quicker so they can be more responsive. Final determination of whether the property in question qualifies as a short sale is at the discretion of the lender or servicer.

Equator has handled more than $113 billion in default-property transactions. The company says with its configurable EQ workstation, EQ marketplace, and new “self-service” borrower portal, Equator is the preferred platform for seven of the top 10 lenders and servicers nationwide.

In addition to its headquarters in Los Angeles, Equator maintains field offices in Irvine, California; Dallas, Texas; and Denver, Colorado.

January 31, 2010


1. What is a short sale?

A short sale is the process by which homeowners can sell their home for less money than they actually owe on the mortgage(s). This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the mortgage balance to allow the sale. If the sale is approved, the mortgage lender(s) will actually take a loss on the mortgage.

If a bank approves the discount of a mortgage, the home can be sold for a price lower than the amount owed without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.

2. How does the bank decide what price to put on the property?

Every bank has a specific method of deciding how much they’ll accept on a short sale.

3. What type of situation is the short sale best for?

Most short sales are accomplished on properties heading toward foreclosure. This means the homeowner is at least 3 payments behind, and the foreclosure process has already begun. Recently however, more mortgages that are simply behind or “in default” are considered short sale candidates without actually being in foreclosure.

Next, the homeowner typically has no equity or negative equity in the home. In other words, the total balance owed to the lender is equal to, or greater than, the price at which the house can be sold.

Lastly, the homeowner must have some type of financial “hardship” which is preventing him from paying the mortgage.

4. Does a homeowner benefit from a short sale?

First and foremost, a short sale relieves the stress of being in foreclosure and it allows the homeowner to get rid of their big mortgage payment and move on with their lives. A short sale allows you to stop a foreclosure proceeding and get a fresh start. In our experience, this is the primary benefit to the homeowner.

On the credit side, a short sale is arguably the lessor of two evils. Having some late payments, and a foreclosure filed has already done damage to your credit.. However, a completed foreclosure generally does more damage than a short sale agreed to by a lender. Obviously, a bankruptcy significantly damages your credit score.

5. I’m an investor, can I short sale my rental property?

Yes, but remember the “hardship” element which must be present. For investors there may also be some income tax issues resulting from mortgage relief. Remember to consult your tax advisor..

6. Does it matter what kind of loan I have?

Possibly. In some instances there is a potential risk of a deficiency judgement or a lawsuit on a loan contract, as opposed to judicial foreclosure. Give me a call and we can discuss the specifics of your situation.

7. I am in foreclosure. Is a short sale for me?

Each situation is different and must be evaluated individually. The important factors in relation to a short sale are:

a. Property in foreclosure or default

b. Personal financial hardship

c. Little or no equity in the property

d. At least 60 days until eviction date

e. The value of the home has declined below the loan amount

If you feel you fit into these criteria, give me a call and we can discuss your specific situation.

8. What if my mortgage is an FHA, HUD or VA mortgage?

Short sales can still generally be accomplished on all of these types of mortgages, though each one has different criteria.

9. What options other than a short sale might I have?

a. Cure your mortgage default (bring your payments current);

b. Attempt a loan modification that adjusts the terms of your existing loan;

c. Refinance your mortgage with another lender;

d. Try to sell your home through normal channels;

e. Attempt to get your lender to accept a deed in lieu of a foreclosure; and/or

f. File for bankruptcy.

10. What is “financial hardship” and why is it so important?

“Financial hardship” is a critical part of the short sale equation. No matter what you hear about banks “not being in the business of owning real estate”, they DO NOT easily give homeowners a break. They require GOOD REASON to give a discount for a short a sale.

The only reason a lender will agree to a short sale is if they determine that a short sale will net them more money than proceeding with the foreclosure. Understanding the homeowner’s financial hardship plays a major role in the lender’s estimation of whether or not it will be paid in full for the mortgage. Quite simply, lenders will make the borrower pay the shortfall if there is no hardship.

Many homeowners try to use a short sale as a “get out of jail free” card to dump a poor investment. Lenders will not allow this, and it is a waste of time to try. If you are employed and have some assets, but you have simply lost value in your home and want to sell, you probably cannot short sale. If you are current on your mortgage, it is very difficult to short sale. Lenders need to see that you simply cannot pay them before they will agree to a short sale.

11. Who owns the house after a short sale?

The purchaser of the house is the owner after a short sale, just the same as in a normal sale. The mortgage lender is paid off and the previous homeowner moves to a different home.

12. What do I do about my back property taxes when I do a short sale?

Just as in a normal home sale, the property taxes are the responsibility of the homeowner until the date the sale is closed. Then they become the responsibility of the buyer. If your property taxes have not been paid this will affect the negotiations between the buyer and the bank, so you must inform me or any buyer of the taxes owed.

13. Do you handle homes in my area?

Our focus is Mecklenburg County and surrounding, however, we will consider listings in other areas of North and South Carolina. In addition, I work with other short sale specialists in the South East and can often refer your case to another Real Estate Broker if I cannot help you.

14. Do you handle duplexes, apartment buildings, condos, or commercial property?

I handle residential properties of all types in virtually all price ranges, but I currently do not handle commercial properties.

15. My home is already listed for sale on the MLS, but isn’t selling; can I still do a short sale?

Yes, you can and it is relatively common. Some lenders even require that a house be listed for sale before approving a short sale in order to show that a discount is necessary.

16. My home is really nice, why is the short sale offer price so low?

Sellers often have an emotional attachment to their home and may feel a short sale offer is too low. It is important to remember a few things. First, the seller in a short sale can never receive any money in the transaction. It should therefore be of little concern what price is offered as long as the short sale is done. The only real exception is when the seller has tax liability concerns. (If there is tax liability, a lower sale price means a larger mortgage relief and a greater tax liability.) Otherwise, the price should not matter to the seller.

The important factor in a short sale is whether the lender will accept the price offered. Lenders often accept prices for short sales which may be surprising to normal homeowners or Realtors. Discounts of 30% are no longer uncommon. This happens for several reasons:

A. Sellers are often in denial about how bad the market really is for housing and therefore, how far the value has declined.

B. Lenders don’t like the foreclosure process any more than homeowners do (especially in California). Lenders incur substantial costs during a foreclosure process that can last more than 12 months. They have attorney fees, filing fees, publication fees, lost interest on the money that is tied up, property taxes, insurance, maintenance costs, as well as the potential for vandalism of a vacant home. This is all BEFORE having to try to sell the home as a bank-owned (REO) property and pay sales commissions. A short sale is a way to avoid some or all of these costs. If a lender calculates his cost of eviction at $50,000 for a house, they will often take a $40,000 loss on a short sale instead and be better off for having done so..

17. Who pays the real estate commissions on a short sale?

The commissions are paid from the funds the buyer places in escrow and because there is no equity in the house, the lender ultimately is the one paying the entire sales commission.

18. Are short sales guaranteed to work?

No. All of the criteria must be met before a bank will even consider a short sale. Even then it isn’t easy to convince a bank that the market value of the home is lower than what they are owed.

Even if all the paperwork has been correctly completed it can take several weeks, or even months, only to be denied. If the lender does not approve the short sale, no transaction occurs. The Purchase Agreement becomes void and the listing continues.

19. How long does a short sale take?

A short sale can take 60 to 120 days or longer to complete. This is very important. The process is complicated and takes a lot of time. So to exercise the short sale option, you must act quickly. If you wait until one week before eviction, no one can help you with a short sale. It is simply impossible. DO NOT WAIT.

20. Why do I have to sign a Borrower’s Authorization?

The Borrower’s Authorization gives the lender permission to speak to your representative about your loan. That’s all it does, but it is necessary. An authorization must be filled out for each mortgage and for each Realtor or escrow officer authorized to act on your behalf.

21. I have heard that I could owe income taxes after a short sale, is this true?

Possibly, but it’s not that simple. There are a number of factors involved. For example, are you an investor or is the property your primary residence. Is the debt on the property “purchase money” or has the home been refinanced. If you’re an investor or if the property was refinanced are you insolvent? You can see how the matter can become complex in very short order. You must consult with an attorney or CPA on this issue. However, without getting too complicated, I can provide our experience with this problem.

When a lender writes off part of a loan (discounts it) the portion written off is the equivalent of a cash infusion to the owner. This “mortgage relief” is then reported as income to you by means of a 1099C form.

Even if you receive a 1099C and declare it as income, there is a good chance you will owe very little tax. This is because there is an IRS rule regarding “insolvency” which essentially says if you are insolvent (more liabilities than assets) at the time of the short sale, you don’t have to count the 1099C as income (instead you declare it, then obtain the exemption). There is an IRS form to complete to show you are insolvent. See the Internal Revenue Service website at www.irs.gov

In December of 2007, President Bush signed a new law into effect providing that for a specified period of time homeowners who satisfy certain requirements will not be taxed on mortgage relief. This bill is called, the “Homeowners Debt Forgiveness Act” and it may or may not apply to your situation.

Again, please consult a CPA or tax adviser.

20. I am behind on my mortgage payments, but not yet in foreclosure. Can I do a short sale?

Yes, this is happening with much greater regularity. Sometimes these are the most attractive short sales for both the buyer and the lender because the buyer can take advantage of the lender’s ability to avoid the vast majority of the costs of foreclosure.

In these cases, it is more important to have a very clear “hardship” story to explain to the lender why you are unable to make the payments.

21. My house needs a lot of repair; can I still do a short sale?

Yes, though it can make the process more difficult because the price must be lower to compensate for the repairs. The key is to show the bank’s appraiser all the work that needs to be done. Let me know in advance if this is the case with your home.

22. I have more than 10% equity in my home – can I still do a short sale?

Probably not. However, you may be a candidate for a regular sale.

23. Other people are on the deed with me, but they don’t want to short sell. Can I still do a short sale?

No. All parties listed on the deed or mortgage must sign the short sale purchase agreement. There are no exceptions to this.

24. I have other liens (i.e. mechanics, IRS, court judgments) on my house; can I still do a short sale?

Yes, but it gets much more complicated and will take longer. If this is the case with your home, be sure to COMPLETELY list all liens you have. Each lien holder must be negotiated with individually. A short sale in this circumstance will take substantially longer.

25. I have property I inherited but I can’t afford the mortgage. Can I do a short sale?

Yes. You might also want to read our article, “Preserve Your Prop 13 Base Year For Your Children and Grandchildren“.

26. I have 2 or 3 mortgages on my house. Can I still do a short sale?

Yes, each mortgage or line of credit (HELOC) can be negotiated individually. It is important to know which mortgage filed the foreclosure or, if more than one are in foreclosure, which one filed first.

January 31, 2010

Treasury Announces Documentation Changes to Expedite Permanent Mods

The Treasury Department released updated guidance Thursday for servicers participating in the Home Affordable Modification Program (HAMP) that requires them to obtain all required borrower documentation upfront, prior to evaluating the borrower for a trial modification under the government program.

Until now, servicers were allowed to initiate a trial HAMP mod based on stated, not verified, income. The verification came later in the process, after the borrower successfully completed their trial payments but before the mod was converted to permanent status. The new upfront requirement applies to all new HAMP modifications that become effective after June 1, although mortgage servicers may implement it sooner, the Treasury said.

In a media briefing announcing the new requirements, Phyllis Caldwell, chief of the Treasury’s homeownership preservation office, explained that after evaluating the first seven months of the program’s progress and talking with struggling homeowners at outreach events, as well as observing the process first-hand at servicers’ sites over the past month, the Treasury decided changes needed to be made to the procedures for collecting paperwork.

According to administration officials, the new documentation requirements will expedite conversions of trial modifications to permanent ones. By ensuring all the necessary paperwork – which includes the application for a modification and hardship affidavit, two pay stubs, and a 4506T tax form that allows the servicer to pull the borrower’s tax return – is in order before the modification begins, qualifying borrowers will automatically be granted a permanent modification once they complete their trial period payments.

A lot of the problem with conversion rates has been time delay, according to Treasury officials. Also helping to streamline the process, the administration is making the application, hardship affidavit, and 4506T tax form available electronically at Makinghomeaffordable.gov. There, homeowners can download the necessary documents and review clear instructions of what paperwork is required, eliminating the time-consuming back-and-forth between the servicer and the borrower and facilitating faster throughput and better use of servicer resources, according to officials.

According to the latest progress report released by the administration earlier this month, as of the end of December, more than 110,000 permanent modifications had been approved, including 66,000 that borrowers have accepted and 46,000 awaiting only the homeowner’s signature.

The Treasury said GMAC and one other national servicer have already begun requiring upfront documentation for mod applicants and are already seeing improvements in their conversion rates.

On the call with reporters, Herb Allison, Treasury assistant secretary, addressed speculation emerging from the media lately that the administration might make principal reduction a more central component of its modification program.

Allison called the growing number of homeowners who are underwater on their mortgage a “serious policy concern.” He said, “We have no changes planned for addressing negative equity in the HAMP program, but I can assure you that the administration is looking at the problem.”

Allison stressed that principal writedown is included in the HAMP waterfall. He said every lender has the option of cutting the principal balance, as well as employing a rate reduction or term extension to bring a homeowner’s payments down to the target 31 percent debt-to-income ratio. The principal reduction has not been utilized all that often Allison said, but it is available.

Caldwell added, though, that about 25 percent of borrowers with HAMP mods have received some principal forbearance.

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