The Real Estate Agent In the Short Sale or Alternative
IS IT A HIGH RISK TRANSACTION???
Elaine Richer
What does the listing agent need to know about the
seller?
Everything…
• Sometimes a SELLER experiences distressing events in their lives that hinder their ability to make the scheduled payments on their home loan!!
WHAT EVENTS?
• 4 D’s– Death– Divorce– Disability/illness– Debt
• What Others?
Unmanageable Loan Changes
• 2/28 and 3/27 Fixed/Arms– Rate rises every 6 or 12 months– Rate reset from 2-6 points– Borrower’s credit score dips below 620
• 100% loans – 80/20 with adjustable 20
How Did This Happen?
• Mortgage Underwriting standards declined
• Refinance to release equity
• Subprime Mortgages– High risk – possibility of default –charge more– Buyer did not understand loan terms– Did not require escrow of taxes and Insurance– 61% of all subprime borrowers in 2006 actually qualified
for better financing – better rates lower terms
Who is to blame for this mess?• Federal Government
• Overzealous lenders/Predatory Lenders
• Investors wanting to increase their returns
• Agents
• Consumers
• Mother Nature – Homeowner’s Insurance
So why not just sell?
• Credit was hurt during ownership
• Pre-payment penalty
• Original loan greater than sales price
• Market Value less than mortgage amount
NOW WHAT HAPPENS?
Payments not on time
Borrower in default of loanBeneficiary has the right to foreclose to satisfy debt
WHAT WILL STOP FORECLOSURE
• Reinstate loan– Pay back loan payments– Pay late fees– Penalties
• Final Redemption period– Pay the loan in full– All costs – late fees, penalties, etc
Can’t pay back … Now What
Provide a borrower with temporary relief by giving him or her the opportunity to cure a delinquency over a defined period of time
AND PREVENT FORECLOSURE!!
Why Would A Lender Consider Anything but full payment?
• Depreciating Market (loan to value)
• Costs after foreclosure$40,000
• Doesn’t want excess inventory
• Greater chance of recovery for lender
What are the RELIEF OPTIONS?
• Forebearance– Reduce or suspend payments up to 18 mo.
• Repayment Plan– 12-18 months pay back
• Partial Reinstatement– Temporary dispensation for 1-2 months– Interest only for 6 month
ANYTHING ELSE
• Partial Claim– One time payment from FHA Insurance– Brings mortgage current– Delinquent at least 4 months up to 12 months
• MAINE HOPE
• LOAN Modification – Change rate– Extend term– Change the balance
Home Affordable Modification Program
• Known as HAMP• Provides for sustainable monthly payments
for 1st lien loan
• Loans not owned by Fannie and Freddie
Payment Reduction Estimator
• Under the Home Affordable Modification program, the target maximum amount for your mortgage payment (or mortgage debt-to-income) should be 31% of your gross (pre-tax) monthly income. This Payment Reduction Estimator will determine what your current mortgage debt-to-income is and how much your monthly payment may be reduced if you qualify for a modification.
MORTGAGE Plan
• First, reduce the interest rate to as low as 2%,• Next, if necessary, extend the loan term to 40
years,• Finally, if necessary, forbear (defer) a portion
of the principal until the loan is paid off and waive interest on the deferred amount.
• Investor • Fannie Mae Loans Phone: 1-800-7FANNIE
[email protected] • Freddie Mac Loans Phone: 1-800-FREDDIE
[email protected] • Non-GSE Loans HAMP Solution Center Phone:
1-866-939-4469 Fax: 1-240-699-3883 [email protected]
If You Don’t Qualify…
• HAFA (Home Affordable Foreclosure Alternative Program)– Utilizes
• Short Sale• Deed in Lieu
– Provides financial Incentives to• Servicers• Borrowers
– Helps preserve property condition and value– Borrower’s payment must exceed 31% of Gross
Deed in Lieu
• Subject to Investor requirements• Full release from debt• Waiver of all claims against borrower
• Leave property in broom clean condition• Deliver clear and marketable title
Short Sale Overview
Borrowers receive pre-approval short sale terms before listing agreement (net proceeds)
• No reduction in commission (up to 6%)• Borrowers released from future liability from
1st Mort• Time frame deadlines• Uses Borrowers financial and hardship info
already collected
Short Sale Agreement
• List Price or Acceptable Sale Proceeds• Listing Agreement – Cancellation Clause– Contingency Clause
• Partial Mortgage Payments & Expenses• Subordinate Liens• Real Estate Commission• DATES: Sales contract and Closing
Who is eligible?
• Principal Residence• First Lien originated before 2009• Mortgage delinquent or default is in
reasonably foreseeable future• Unpaid balance no more than $729,750• Borrower’s total loan payment exceeds 31%
of gross income
TIME LINE
• 14 DAYS• 120 DAYS• 3 BUSINESS DAYS• 10 DAYS• NOT LESS THAN 45 DAYS• 10 DAYS
What Life Events are considered Hardship by Lender
• Job Loss • Relocation– Market changes prevent selling
• Increased mortgage payment due to – Adjustable 1st or 2nd mortgage
• Loss of Income– Change of job– Decreased hours or income per hour
• Health circumstances
Cost to the Government
• $3500 for each transaction– $1500 Relocation Funds– $1000 Servicers’ admin costs– $1000 Investors’ incentive to allow up to $3000 in
short sale proceeds for subordinate lien holders
• Can the servicer complete a foreclosure during the HAFA process?
• No – A servicer may initiate foreclosure, but may no complete a foreclosure sale.
Other Short Sales and Alternatives
• FHA
• VA
• Fannie and Freddie
FHA Refinancing
FHA Modification Loan - HAMP
FHA Short Sale
• Before Listing– Short sale package is approved– Appraisal is completed– Homeowner signs HUD Form 90045
• Listed price is agreed to• Net to Lender
• Net to lender if sold in– 30 days 88% of fair market value– 31- 60 days 86%– 61+ days 84%
• Seller Concessions- not to exceed 1%
VA Compromise Sale
• If the borrower is not able to sell home for an amount equal to or greater than what he/she owes including closing costs, VA may pay a compromise claim for the difference.
• Cannot pay a compromise claim beyond what the loan was guaranteed for…
VA Compromise Sale
• Contact VA 1-800-827-6311 orVA approved Mortgage Co. Loss Mitigation Dept. (
www.vba.roanoke.com) for:– Letter of request– Financial status report– Compromise Agreement Sale Application
• Must be sold at market value• Reasonable closing costs• No Second liens• Less costly to government than foreclosure• Borrower must show hardship• First obtain a sales contract
VA Compromise Sale
• When offer is received, package includes:– P& S with Contingency – “This offer is contingent
upon approval of a VA Compromise Sale”– Good faith estimate projecting closing costs– Completed• Request• Financial Status Report• Compromise Agreement Application
– VA appraisal when package is received
VA Compromise Sale Hardship
• Employer or financial situation will require relocation
• A decrease in income
• A major medical expense
• The death of a principal wage earner
What is FNMA and FHLMC doing?• Freddie Mac– Fast tracking short sales– Limited documentation– Refinancing – 1-800-Freddie• www.freddiemac.com/avoidforeclosure
• Fannie Mae– Starting to Pre-Approve short sale properties– Home Saver Advance• Missed payments – temporary situation
– Refinancing – 1-800-7FANNIE• www.fanniemae.com/homeaffordable
Conventional Short Sale & Other
• Need P&S before appraisal• Need Agent Authorization form• Net to lender is 85% of fair market value• Eligibility of Seller– 90 days delinquent– Home is still occupied– Not making payments– Financial Hardship
Not able to connect with lender…
• Call:– Homeowners HOPE Hotline• 1-888-995-4673 for best plan of action
Every Short Sale is DifferentAs a listing agent be prepared to get
– Agent authorization to speak to Loss mitigation department– http://loanworkout.org– Short sale package from 1st and 2nd (Loss Mitigation Dept./
Asset Manager) (Ask -Is it online?)– Preliminary title– Property appraisal or CMA– From seller:
• Financial statements/Income Status• Signed Tax returns for previous year• Two most recent paystubs – year to date earnings • Monthly budget• 2 months bank statement• Seller statement of need or hardship
– Medical Bills– Repair Estimates– Debts
What else ?
• Written release from owner for info from lender and anyone else– Mortgage balance, interest and penalties– Status of Property tax payment– Condo Dues/Special Assessments– Liens and attachments
• Never send in an….
At the Time of Offer, Listing Agent should have…
• Preliminary Title Report• Listing Agreement• Copy of Purchase and sale agreement– Purchased as is condition– Contingent upon lender approval and other requirements
• Seller’s Net Sheet/Maybe from title company• Completed Short sale package• Buyer approval letter/Verification of Funds
Process at Bank
• Bank acknowledges receipt of file (10 days to a month)
• A negotiator is assigned (30-60 days)• A BPO is ordered• File is sent for Review (2 weeks to 30 days)• Issues a short sale approval• April 12 new bill introduced in the House –
impose a deadline of 45 days to respond.
As a Buyer Agent• Prepare your clients – Time Delays/weeks to get response– May not close– Non-responsive lenders/Offers expire– Lender may require quick action by buyer– Penalties for late closings
• Prepare a CMA• Contingency with short sale– Approval of lender– Timing of home inspection
• Terms of Approval Letter
What should the buyer agent know?
• What type of financing the seller has– FHA• Pre-approval
– VA (Compromise Sale Program)• Completed Compromise Agreement Sale Application
– Does seller qualify for a short sale under HAFA• Pre-approval• Deadlines
What Else
• Has foreclosure started?– Is Loss Mitigation Dept. in contact with
Foreclosure Dept.
• Is the seller eligible for a short sale?• Is there a subordinate lien? • Are there other offers submitted?
PROBLEM With Short SalesLender Calls the shots
• Lender can renegotiate the price and terms agreed to by buyer and seller
• Lenders will limit or refuse to:• Help with down payment assistance• Pay buyer closing costs• Make repairs
• Lender addendums set daily penalties• Time delays • Lots of Paper work• Agreement to a lesser commission• Credit Score changes • Second Mortgages and PMI companies
ADVICE TO SELLERS
• Watch out for scams:– Equity Skimming– Phony counseling agencies – Stay in home to qualify– Don’t sign if you don’t understand– All Promises in writing– Check with lawyer before contract– Check Buyer with Attorney General
• Check on Deficiency
New Law – MARS Rule(Mortgage Assistance Relief Services
• Effective January 31,2011• Primarily directed at companies offering loan
modification services• Affects Real Estate Agents who– Market themselves as a short sale specialist– Communicate with a lender about the possibility
of a short sale– Provides or arranges to provide any mortgage
assistance relief service
Summary
• Opportunities• Complex transactions• RE Agent – well informed• Inform client of Risks
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