Loss Mit Services

Short Sale Tip 10-8-10

Posted on 07. Oct, 2010 by ctlms in Foreclosures, My Blog, Real Estate, Short Sale, foreclosure

So What's Up With HAFA?

So with all this HAFA hoopla what is the skinny on this program?  What are positives and the negatives?  Let's delve into the particulars.

What is HAFA?

HAFA stands for Home Affordable Foreclosure Alternative and is a subset of the HAMP program rolled out last year.

So what's the deal, how does it work?

HAFA is supposed to "streamline" the short sale process by standardizing paperwork across lenders and shortening the approval timelines for a short sale.  Notice I said "Supposed to".

HAFA has incentives for the Servicers, Investors and Borrowers to participate.  The Servicers get paid to complete HAFA short sales, the Investors get paid for approving them and the Borrowers get $3,000 at closing for preventing them all from further losses associated with foreclosure.

All sounds good right? Well not quite so good.

First off HAFA has actually slowed down the entire short sale pipeline across almost all lenders.  Citimortgage discloses that HAFA adds about 4 weeks to a short sale.  Bank of America is 2 weeks to forever longer. (These are if not pre-applying)

The reason for the increased timelines is that HAFA allows the borrower to "pre-apply" for a HAFA short sale.  In theory that is great.  The borrower can find out if they qualify for a short sale and the bank will tell them how much they will accept.  Also, During the minimum 120 marketing period the bank will not foreclose.  Sounds Good!

But it isn't, for many reasons.  For the system in general, the negative is that there are now tens of thousands of short sales being reviewed that don't even have offers on them.  This is overwhelming the servicers and making all short sales take longer.

But that is just one negative.  Lets look at the pros and cons of the 2 ways to get a HAFA short sale done.

1. Pre-Apply

If you pre-apply for a HAFA short sale, before there is an offer, the servicer will;

a. Review the sellers financials to determine if they qualify.

b. Order a value and determine how much they are willing to accept for the property.  This can be in the form of a "net to the bank" or an "approved listing price"

c. Issue the Short Sale Agreement (SSA) for the seller and their agent to sign.  This agreement sets the terms of the HAFA program such as;

1. Length of marketing period, not to be less than 120 days

2. Commission approved, can be less than listing agreement and can be less than 6%, Except Fannie and Freddie loans

3. Amount of mortgage payment that must be made during the marketing period, not to exceed 31% of the borrowers GROSS monthly income

4. Deed-In-Lieu language.  This can state that if the borrower does not find a buyer with an offer acceptable by the lender, that at the end of the marketing period the borrower will deed the property back to the bank in a voluntary foreclosure. OUCH!

5. That the borrower will receive a full release of liability for the remaining balance at the closing of a Short Sale or Deed-In-Lieu

6. That the borrower will receive $3,000 at closing of the Short Sale or Deed-In-Lieu

Pros

1. Seller gets full release of liability

2. Seller gets $3,000 at closing

3. Saves time after the SSA is agreed to as the servicer only has to review an offer against the pre-determined approved price.

Cons

1. Commission can be arbitrarily cut below 6%, accept for Fannie and Freddie loans

2. Seller may be required to make a mortgage payment they cannot afford, to qualify for HAFA

3. Seller may have to sign agreement to a Deed-In-Lieu if a buyer cannot be found at the banks approved price.  This is at the beginning of the marketing period.

4. When the BPO is done, there has been limited or no listing history or showing feedback to help determine what the market is NOT willing to pay for the property and no offer to be considered to represent what a buyer from the market IS willing to pay for the property.  This can increase the possibility of the value coming in at a price that the market is not willing to pay and dooming your short sale to failure from the start.

2. Apply for HAFA when you have an offer

If you apply for HAFA short sale, when submitting an offer, the servicer will;

a. Review the sellers financials to determine if they qualify.

b. Order a value and determine how much they are willing to accept for the property.

c. Review the offer for approval based on the investors guidelines and BPO value.

Pros

1. Seller gets full release of liability

2. Seller gets $3,000 at closing

3. Commission cannot be cut below what is agreed to in the listing agreement, not to exceed 6%

4. The BPO agent will have your full marketing history, showing feedback and the offer to consider along with comps when conducting the value estimate.  This reduces the possibility of an inflated value. (but doesn't eliminate it)

Cons

1. The process will be longer for the buyer as the bank has not already determined if the borrower qualifies or what their opinion of value is on the property

2. Freddie Mac does not allow for HAFA applications other than the pre-application process.  So it is important to pre-apply for HAFA if the loan is owned by Freddie Mac

3. Foreclosure is not avoided while marketing the property.  Care should be taken to be sure a foreclosure date is not immanent and pre-apply if it is to buy the seller time.

My Conclusion

In most cases it is advisable to not pre-apply for HAFA in order to avoid the possibility of an inflated BPO, un-affordable mortgage payment for the seller, Possible Deed-in-Lieu language in the SSA, and commission cuts.  Oh, did I mention that during the marketing period you as the agent have to continue to report back to the bank with monthly CMA's and other reports?

In most cases applying once an offer is received is your best shot at avoiding negatives for your seller and yourself and also giving yourself the best shot at actually getting the short sale approved.  But as in all short sales, the buyer expectation on time-frame are crucial.

All that being said...It is the sellers decision on how to proceed and they should be fully informed of the pros and cons of both courses before making that decision.  After that, it is up to all of us to do our best to navigate the pot holes and avoid the negatives whenever possible.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs

Short Sale Tip 7-5-10

Posted on 05. Jul, 2010 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Does the seller sign the contract before bank approval?

I have heard this question a ton of times and have seen agents argue over it.

The answer is always YES!

Let's look at the issue.

1. There is no Contract until the Offer is signed.  So if the buyer's offer is never signed, there is no binding contract holding the buyer to the purchase or the seller to the sale.  This means the buyer has not deposited an earnest money check and can walk at any point.  This also means the seller is free to accept any other offers that come in without first having to be released from the original buyer.  Not a smart thing for either party.

2. More importantly, most lenders will not accept an offer.  There must be a fully executed contract.  Many of the larger lenders such as Wells Fargo and Bank of America even require closing date extensions and other addenda to the contract and the dates must always be current.  So if something expires, it must be updated with an addendum or the short sale review stops.  Going even further, some lenders even want to see a copy of the earnest money check.  The requirements are getting more and more thorough.

In summary, Yes the contract must be signed.  It makes sense for both the seller and the buyer and with very few exceptions, the lender will require it anyway.

Sean Wilder

Short Sale Update 3-31-10

Posted on 31. Mar, 2010 by ctlms in Short Sale, foreclosure

Changes are coming to the short sale world!

It has been quite a while since my last blog post.  We have been extremely busy and are currently working with over 50 sellers and their agents.

I am sure that many of you have heard about the new HAFA or Home Affordable Foreclosure Alternative program that is coming in April. So I thought I would shed some light on it.

What is HAFA?

HAFA is a set of directives that for HAMP participating services to comply with that standardizes the documents and procedures for reviewing a short sale.  It also allows a homeowner to apply for a short sale prior to listing the property or having a contract.  If the seller has a SSA or Short Sale Agreement in place it will state the allowable net proceeds from a sale or the approved listing price and allowable closing costs including the commission.

The sellers must be HAMP eligible.

You may have heard that the commission cannot be reduced below 6%. This is not true!

If the seller applied for the program before a purchase contract is received, the servicer can specify the approved commission and it can be lower than 6%.  However, if the RASS or Alternative Request for Short Sale Approval is used after a contract is received and a SSA is not already in place, the commission listed in the listing agreement cannot be reduced below 6%.

Other highlights of the program are:

• Full release of liability for the seller
• $3,000 moving incentive for the seller
• 10 Business days for approval if an SSA is already in place
• Minimum 45 days for buyer to close

Hurdles that still exist;

• FHA, VA, Fannie Mae and Freddie Mac loans are not eligible, they have their own programs
• Second mortgages and liens must still approve and can only receive a maximum of 6% of their principal balance and must release the seller from liability.  Most seconds are currently demanding at least 10% and often leave the seller liable for all or part of the difference.
• Mortgage insurance companies must also agree.  Again, PMI companies have been routinely asking for cash or promissory notes from the sellers but are bared from doing so under HAFA. Will they agree?
• The seller may be required to give up the house in a Deed-In-Lieu if it does not sell in 120 days.  It is still debated if this has credit consequences as bad as foreclosure.

So as much as this has been touted as the "silver bullet" to the issues we have been facing with short sales, it may not be.

The program is voluntary for non HAMP participants.

The VALUE is still the key.  If the value comes in higher than what the market is really willing to pay now, an offer will never be approved.  Add to it that if the seller applies on their own, before contracting an agent, there will be no one there to try and make sure that the person evaluating the current market value of the home has every shred of evidence relating to it's current value.  The BPO has been the biggest killer of short sales. It could get even worse with this kind of program.  In a declining market and with many BPO agents coming from outside of the market we have routinely seen BPO values come way above where any of the offers are.  We have even seen appraisals come in above the listed price or at a price that the property has been listed at for months.  If it were worth that, there would be offers!  Doesn't that make sense?

As much as I pray that this program streamlines the system and reduces the backlog, I doubt it.  We will still be dealing with the Chase's and Bank of America's that have been a thorn in the system from the beginning.

It will just be another day in the office for those of us that negotiate short sales every day.  The lenders already ask for the same documents.  So what if they look a little different.  Even in this program they are allowed to alter the documents.  So one servicers documents will not be the same as the next.

They are also allowed to implement the directive "in accordance with investor guidelines".  What does that mean?  You got me.  Servicer already review short sales in accordance with the investors guidelines.  So how does this change anything?

The only thing I can say that may be 100% positive is that the Gov't will be paying the servicer incentives to get these done.  Of course if you pay taxes you may not think that is a good idea. But it "may" grease the wheels a little.  I say "may" because $1,500 is peanuts to these guys.   I have seen offers rejected because the offer was less than that below the acceptable net proceeds.

Let's all keep our fingers crossed and I'll get back to you in a couple months and we'll see if this changes anything.

Keep in mind, FHA has had a VERY similar program since the 90's and just the other day I called a major servicer, Citimortgage, and they told me they had never heard of it.  Typical!

Have any other questions on foreclosure or short sales?  Think you and your fellow agents could benefit from an office visit from us?  Give us a call or email us for more information about our office visits.  They’re free and always informative.

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As always Visit the Ask The Expert Page to leave your questions or contact Sean Wilder directly if you need immediate assistance at [email protected] or visitwww.CTLMS.com