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 Ds – 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 – Borrowers credit score dips below % 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 – Homeowners 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 loan Beneficiary 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

Cant 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 Doesnt 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 – 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 1 st 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: FANNIE Freddie Mac Loans Phone: FREDDIE Non-GSE Loans HAMP Solution Center Phone: Fax:

If You Dont 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 – Borrowers 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 1 st 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 Borrowers 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 1 st or 2 nd 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 Listed price is agreed to Net to Lender Net to lender if sold in – 30 days 88% of fair market value – 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 or VA approved Mortgage Co. Loss Mitigation Dept. ( 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 – Freddie Fannie Mae – Starting to Pre-Approve short sale properties – Home Saver Advance Missed payments – temporary situation – Refinancing – FANNIE

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 for best plan of action

Every Short Sale is Different As a listing agent be prepared to get – Agent authorization to speak to Loss mitigation department – – Short sale package from 1 st and 2 nd (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 Sellers 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 Sales Lender 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 – Dont sign if you dont 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