The Real Estate Agent In the Short Sale or Alternative IS IT A HIGH RISK TRANSACTION??? Elaine Richer.

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