Obama’s New Program to Pay Homeowners to Short Sale Their Homes

9 03 2010

I thought I share with you what I just came across The New York Times article on 3/8/10:

“In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

One owner’s case
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

‘Tailor-made for fraud’
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.

The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

‘In a perfect world …’
Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.”

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.

Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.

Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.

“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”

Mr. Reddy still lives in the apartment complex where he bought that condo, but is now a renter paying about half of his old mortgage payment. Another benefit, he said: “The place I’m in now is nicer and a little bigger.”

Source: NY Times

NACA’s Save the Dream Tour Promotes Mortgage Relief

7 03 2010

Last week Boston-based Neighborhood Assistance Corporation of America (NACA) traveled to Palm Beach County’s Convention Center in South Florida to promote “Save-A-Thon” event.

NACA brought an army of bank representatives – at least 100 from Bank of America alone – and NACA counselors who meet face-to-face with troubled borrowers, wrapped in blankets and travel-weary after flying from as far away as California, waited for the salvation of a mortgage modification. This non-profit group is offering free help to homeowners with lowering monthly payments through federal programs and agreements it has with many of the nation’s major lenders.

And while the event seemed at times like a church revival as homeowners with success stories were brought to a microphone to testify, there were sincere solutions occurring on the convention center floor.

Teresa Holston, a registered nurse who traveled from Los Angeles for the event, started crying when she spoke of her new 2 percent interest rate, a reduction from 9 percent.

“It’s like a new lease on life,” said Holton, who got in trouble when she refinanced her home and broke up with a boyfriend who was paying part of the mortgage. “I am just so grateful.”

For many homeowners, NACA’s event was the last attempt in a months-long struggle to work with their banks through the Obama administration’s Making Home Affordable Program.

The program offers incentives to banks to lower monthly payments by reducing – sometimes temporarily – interest rates and principal amounts, or offering a principal forbearance, which cuts the principal balance on the front end, but tacks it onto the end of the life of the loan.

NACA founder and CEO Bruce Marks pushes for even better terms. He asks lenders to permanently reduce interest rates. If there is a principal forbearance, he asks that a mandatory repayment be made only if there is a profit made on the sale of the home.

He doesn’t always get his way. Many of the loans modified Thursday had reduced interest rates that will adjust at the end of five years. Still, the reduction helps the borrower now with making monthly payments.

“Frankly, it makes business sense for them to be working with us now,” Marks said about lenders. “These servicers have very good machinery to foreclose on people, but not to modify a loan.”

Marks has been criticized for his guerilla-style tactics, which include rallying outside bank executives’ homes. His operation is paid for partly with federal grants, having received $25 million last year, Marks said. Detractors complain he is not forthcoming with his success rates and should be more transparent since he is getting taxpayer dollars. He says about 30 percent of clients receive a same-day modification. Up to 80 percent eventually get their payments reduced, Marks said.

Bully or not, Marks has persuaded many major lenders to send representatives to his unconventional “Save the Dream” workshops.

NACA has legally binding agreements with all the major lenders/servicers and investors (i.e. Fannie Mae and Freddie Mac) covering over 90% of homeowners to achieve to a restructure or forbearance and is advocating against others. While servicers, investors and government agencies often fight against long-term solutions, NACA will continue advocating with homeowners to achieve a long-term affordable payment that is locked-in for the remaining term of the mortgage. All of NACA’s services are Free. NACA also provides for free a forensic audit to determine any violations in obtaining your current mortgage.

For more information, visit http://www.naca.com. You can find out about the workshop participation in Jacksonville. Check out their website.

Source: NACA and The Palm Beach Post

HAFA Short Sale Rules May Help Sellers

3 03 2010

Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives, or HAFA, program.

Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.

HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process.

“The streamlined short sales process will definitely help homeowners,” says David Liniger, Re/Max International chairman and co-founder.

Prior to HAFA, homeowners often listed their home for sale without an idea of what the lender would accept.

“A lot of sellers and their Realtors have not been able to sort out the problems with short sales and have given up on the process because, even after sending in the correct paperwork, they have sometimes waited three or four months for their lender to respond,” Liniger says.

Under HAFA, borrowers receive preapproved short sale terms from the lender prior to putting the home on the market.

Lisa Matykiewicz, a Realtor and Certified Distressed Property Expert in Gilbert, Ariz., says the updated short sale rules establish an easy-to-understand process with predefined steps that “make it easier for everyone to understand.”

Eligibility requirementsThe HAFA guidelines apply to lenders who voluntarily participate in the HAMP program. The Department of Housing and Urban Development says more than 100 servicers have signed up to participate in HAMP, covering more than 89 percent of mortgage debt outstanding in the country.

To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program, or HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan modification period qualify for HAFA.

Other HAFA requirements include:Property is principal residence.Mortgage originated before Jan. 1, 2009.Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.Borrower is delinquent or default is foreseeable.Homeowner demonstrates hardship.Borrower’s total monthly housing payment exceeds 31 percent of gross income.Unpaid principal does not exceed $729,750.

According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short sale agreement.

“I think it’s great that the lenders in this program have to offer a short sale before going to foreclosure,” Matykiewicz says.

When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers’ mortgage preapproval and the status of negotiations with other lien holders on the seller’s property.

Finally, lenders must approve or deny the contract within 10 days.

HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.

Other incentives
In the past, short sales were especially difficult for homeowners with more than one loan on their home, since the home sale typically repaid only the first mortgage. HAFA’s financial incentives include a payment of up to $3,000 for second mortgage holders.

“Second trust lien holders are often owed five or 10 times that $3,000 payment,” says Liniger. “But if the property goes to foreclosure, the second trust holder is not likely to get any money at all. This at least guarantees they get something.”

Other HAFA financial incentives include $1,000 to loan servicers to cover administrative fees, up to $1,000 for mortgage investors who agree to share short sale proceeds with second lien holders and $1,500 to the homeowners for relocation.

“The moving expense allocation acts as an incentive for them to stay in the property until the short sale goes through,” says Liniger. “Owner-occupied properties are usually in better condition than vacant homes.”

Source: CNBC

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