As of today, the short sale process is streamlined. However, it remains to be seen how seamless the changeover will be for lenders.
The Home Affordable Foreclosure Alternatives (HAFA) program provides the following incentives.
$3,000 to borrowers for relocation assistance
$1,500 to servicers for administrative and processing costs
Up to $2,000 to investors who allow up to $6,000 in short sale proceeds to be distributed to subordinate lien holders
HAFA also provides a big protection for participating sellers: “Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holders receives an incentive under HAFA, those debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).”
The National Association of Realtors reports that borrowers will have to meet certain criteria to qualify for this program.
“Principal residence. The property may be vacant up to 90 days before the date of the Short Sale Agreement (SAA), Alternative Request for Approval of Short Sale, or DIL (deed in lieu of foreclosure) but only if the borrower documents they were required to relocate at least 100 miles from their home for purposes of employment and they have not purchased another property in the 90 day period.”
“First lien originated before 2009″
“Mortgage delinquent or default is reasonably foreseeable”
“Unpaid principal balance no more than $729,750 (higher limits for two- to four-unit dwellings)”
“Borrower’s total monthly payment exceeds 31% of gross income”
HAFA’s goal is to prevent underwater properties from going into foreclosure.
The National Association of Realtors (NAR) produced the following materials for consumers.
The National Association of Realtors released guidelines for the new Home Affordable Foreclosure Alternatives (HAFA) program. The government’s program is designed to streamline the short sale process for qualifying homeowners.
DHW asks: Have you sold your home as a short sale? If so, how was your experience?
The Wall Street Journal published an insightful op-ed piece by Edward Pinto. Mr Pinto sees two major shortfalls with the Treasury’s attempt to modify delinquent mortgages through the Home Affordable Modification Program (HAMP).
“The first shortfall is that the program doesn’t provide a clear process to triage the over 7.5 million delinquent loans.”
“It doesn’t take into account that the primary reason borrowers default is “negative equity.” When a house is worth less than what is owed on it, making monthly payments seems like a waste of money and many homeowners walk away.”
Mr. Pinto categorizes the three types of delinquent borrowers in his article:
Borrowers with loans for vacation homes or investors. Pinto feels these loans should be identified immediately and, “when necessary, foreclosed on.” ‘Scammers’ also fall into this category.
Borrowers who can’t or won’t pay their mortgage. Mr. Pinto feels these borrowers should be given incentives to vacate their homes, “either a small amount of cash or the ability to conduct a short sale.”
Borrowers who have demonstrated an ability and willingness to pay their mortgage. Mr. Pinto writes that these borrowers can be best served “if we stop clogging the system with unqualified borrowers from groups one and two.”
(If you fall into category three, still call your lender for a loan modification using HAMP. With government pressure now on the industry to act quickly, you may find your lender to be more cooperative than in the past. If you fall into category two, contact your lender to request a short sale or deed-in-lieu of foreclosure.)
In October 2008, along with Peter Wallison, Edward Pinto wrote in the Wall Street Journal that government agencies bore a responsibility to “clean up the mess they had made by lowering underwriting standards to satisfy Congress’s desire to increase home ownership.” They suggested “that the loan principal could be reduced by an average of 20% to give owners equity—and with it an incentive to pay their mortgages.” They also suggested that mortgages “be modified to a 5% fixed rate loan with a 20-year term.”
DHW highly recommends that you read this article (this includes you too, Treasury).
DHW asks: Have you applied for a loan modification or short sale? If so, how was your experience?
Finally, relief for those seeking a loan modification, short sale or deed-in-lieu of foreclosure. Lets hope these will be the game changers we’ve been waiting for.
Update for those seeking a loan modification using Making Home Affordable (a.k.a. HAMP)
New guidelines for streamlining short sales and deed-in-lieu of foreclosures (HAFA)
This information is also available under “Modification Center”
DHW asks: Do you think these programs will be game changers?
Zero percent kitchen: n. a kitchen remodeled at the height of the real estate and credit bubble, between 2001 and 2006, featuring high-end details such as granite or Corian countertops; designer cabinets; stainless steel appliances and upgraded flooring (e.g. hardwood or travertine tile). Improvements were paid for with zero percent financing programs originated at home improvement stores.
When the dust finally settles from the collapse of the housing and credit markets, one indelible mark will remain: the zero percent kitchen. Prior to the run on home prices in the early 2000’s, and easy access to credit, solid-surface countertops, stainless steel appliances, and hardwood floors were appointments once reserved for high-end homeowners. With the advent of zero percent financing by such superstores as The Home Depot and Lowe’s Home Improvement, these upgrades became easier to attain for middle class America. Of course, this came at a cost to consumers. After six moths to one year, interest rates under these credit programs skyrocketed to nearly 30% on unpaid balances.
With short sales, foreclosures and other distressed sales on the rise, today’s homebuyer has a greater opportunity to purchase an entry level home with a zero percent kitchen. Although the return on investment is not as high as it once was for these improvements, it can give a home a big edge in the market place when competing with properties that still have the builder’s standard kitchen.
If you are a buyer looking at foreclosures, and the homes you like lack a zero percent kitchen, don’t worry. The FHA 203k rehab loan may still afford you the opportunity of having your dream kitchen.
And don’t get us started on the zero-percent bathroom.
DHW: Do you think the ‘zero percent kitchen’ will stand the test of time?
Did you know: The term ‘zero percent kitchen,’ originated on desperatehousewise.com
U.S. foreclosures sank for a third consecutive month in October, down 3% from the previous month. However, many feel this trend will not continue. Foreclosure notices were curtailed in many states due to temporary, legislative intervention. CNBC reported Nevada foreclosures “dropped 26 percent from the previous month because of new legislation requiring mediation before initiating foreclosure proceedings.” Illinois had similar legislation, but foreclosure notices skyrocketed there 56% in October from the previous month.
The Miami Herald reported the Federal Housing Administration (FHA) is temporarily relaxing underwriting guidelines for some condominium communities. The changes are intended to increase condo sales and put occupants in otherwise vacant units.
DHW asks: Do you agree with the FHA’s decision to relax condo underwriting guidelines?
Critics of the Housing Tax Credit were quieted, if only briefly, when the National Association of Realtors (NAR) released data for third quarter home sales. According to the trade group, home sales increased by nearly 6% over this same time last year. Despite the spike in sales, prices have fallen more than 11% during the same period. The U.S. median existing single-family price for the third quarter was $177,900.
Opponents of the housing tax credit feared an inflationary reaction in home prices. Although housing inventories are down, existing units still outweigh the demand.
NAR chief economist, Lawrence Yun, predicts home prices will stabalize next spring. His prediction may be overly optimistic. Foreclosures and short sales made up 30% of thrid quarter sales. There is no real evidence to suggest foreclosures will take a breather in 2010.
DHW asks: Do you see a bottom to the housing market?
Fannie Mae is expanding its ‘Deed for Lease’ program to help thousands of homeowners facing foreclosure. The program is designed for those who want to stay in their homes but do not qualify for President Obama’s loan modification program. Participants transfer their title to Fannie Mae and rent back for up to one year.
Some facts about the program:
Fannie Mae has hired an outside agency to manage the properties (name of agency has not been released)
Rent cannot exceed 31% of the homeowners’ pretax income
Homeowners must be able to prove they can afford the market rent (established by the management company)
Participants must use the home as their primary residence
DHW asks: Do you think ‘Deed for Lease’ is a good idea?
The first is written for real estate professionals and homeowners; the second for servicers (i.e. your mortgage lender).
Important facts to remember when negotiating an offer:
After you have a fully executed contract, your lender will order a VA appraisal. VA will not approve the sale if the net proceeds are less than 88% of the new appraised value. Remember this when negotiating the price.
For a compromise sale, VA discourages the seller from paying costs that are customarily paid by the buyer. You should have a strong argument ready for your lender if the contract reflects these expenses. VA may still approve these costs if the lender nets at least 88% of the appraised value.
Don’t believe your lender if they tell you a customary seller’s expense is not approved by VA. (This is where the Servicer Loss Mitigation Program guide comes in handy. See the bottom of page 28 with regard to allowable costs.) This fact cannot be stressed enough: VA does not have a sanctioned list of “allowable” and “non-allowable” closing costs. If your lender uses this tactic to deny authorizing customary expenses, push back. Do not be afraid to call VA for backup (1-800-933-5499 or 1-800-319-9446). The VA is far more reasonable than your lender will have you believe.
DHW asks: Have you completed or attempted a VA compromise sale? How was your experience?