Scott Gillen, CMB Stewart Lender Services Uncovering The Mysteries Of The Short Sale Process

Making Home Affordable (“MHA”) is an alphabet soup government initiative to reduce foreclosures by providing: HAMP and 2MP- Home Affordable Modification Program HARP-Home Affordable Refinance Program HAFA-Home Affordable Foreclosure Alternatives *The program was announced March 4, 2009 but continues to evolve with frequent clarifications and changes. It expires 12/31/2012. Overview

Eligible Conventional Loans 1.FNMA (except recourse loans) - securitized or owned 2.FHLMC 3.For recipients of new TARP funds: “Owned” portfolio and securitized loans (except where PSA prohibits) 4.FHA Loans Eligible Borrowers: 31 days or more past due (2 payments) Borrowers in foreclosure Borrowers in active bankruptcy Borrowers in litigation Current borrowers in “imminent danger of default” Eligibility Requirements

Must have a hardship Eligible Properties Single Family 1-4 unit Condos Cooperatives Approved manufactured housing Only owner occupied/primary residence Excludes vacant or condemned properties, “but property can be vacant for the previous 90 days if the borrower moved 100+ miles for work and did not buy another home” Eligibility Requirements

Balances: Currently, 1 st lien Conventional loans with UPBs up to $729,750 (1 unit) to a max of $1,403,400 (4 unit) Origination Dates: Loan must have been originated prior to January 1, 2009 Eligibility Requirements

Borrowers Fully Underwritten with verified income to determine 31% DTI Occupancy Verified Trial modification period required Final Modification documents are issued near end of Trial Modification period. Borrowers with TDTIs above 55% required counseling FC Temporarily Suspended Some exceptions exist. Modification Process

7 Hardship Affidavit / Imminent Default Most recent signed income tax return Proof of residency (e.g., current utility bill) IRS Form 4506-T Borrower’s monthly income documentation Credit report on each borrower Form 1126, Borrower Financial Statement Borrower’s other indebtedness (e.g., alimony) Property Value (AVM / BPO) Borrower Information

HAFA is part of HAMP and provides: Incentives to Servicers and Borrowers who utilize short sale or Deed in Lieu’s to avoid foreclosure on a loan ELIGIBLE UNDER HAMP Servicers required to implement prior to 4/5/2010 Home Affordable Foreclosure Alternatives (HAFA)?

Lenders who participate in the HAMP program. Additional lenders are eligible to apply Approved lenders can be found at At this stage, loans owned by FNMA and FHLMC are not included in the program Who Is Participating In HAFA?

Before HAFA: Risk of short sale success was primarily borne by the listing broker, the seller, and the patience of the buyer All negotiations were done after an offer was made All parties were subject to extended timelines for approval to await Title Review Junior Lien Negotiation Mortgage Insurer Negotiation Valuation Review Purchase Price Renegotiation Commission Adjustments Title Curative Work Home Affordable Foreclosure Alternatives (HAFA)

Reactive vs Proactive Management Mortgage Insurance/Junior Lien Negotiations Title/Curative Issues Myriad of Investor/MI Company Guidelines Borrower Participation Buyer Eligibility/Tire Kickers Regional Value Issues Causing Record Volumes Entitlement Issues Pre HAFA Short Sale Challenges

Borrowers are fully released from future liability for the balance of the debt HAFA uses standard processes, documents and timelines Provides financial incentives to borrowers, servicers and investors HAFA specifically prohibits the reduction of commission by the lender HAFA Improvement Process

Servicer must develop a policy that describes basis under which HAFA is offered to borrowers consistent with investor guidelines. This policy should consider:  Loss Severity  Local Market Conditions  Foreclosure Timelines  Borrower Engagement and desire to participate Servicer may not solicit a borrower for HAFA until the borrower has been evaluated for a HAMP Modification, alternative modification or any other home retention offer available If borrower meets other eligibility requirements, servicer must be considered for HAFA before the borrowers loan is referred to foreclosure. Servicer must consider borrower within 30 calendar days of the date the borrower:  Borrower is not offered a Trial Period Plan for qualification reasons  Do not successfully complete a Trial Plan  Borrower defaults on HAMP Modification  Formally requests a short sale or DIL Requirements Of Participating Servicers

Loss Severity and Recovery Review Minimum Acceptable Proceeds Defines what the bank will accept when you list the property Financial Information is Required Borrower Contributions Short Sale Agreement Cannot not be actively pursuing modification Property Valuation Market Analysis Independent BPO’s Appraisals If short sale successful, will add to loan balance Title Review Not required, strongly recommended Identifies the Appropriate Servicer Considerations

Must be listed with licensed real estate professional regularly doing business in community where property is located Fixed termination date (listing period) of not less than 120 calendar days Shows the list price or net proceeds (net after subtracting allowable costs) Amount of closing costs servicer will permit to be deducted from gross sales proceeds or list of reasonable closing costs it will permit be deducted Amount of real estate commission to be paid, not to exceed 6% Contingency clause, must include notification to purchasers that sale is subject to lender approval Must be an arms length transaction, cannot sell for 90 days Requirements Of Short Sale Agreement

Notification that the borrower will be released from the debt and any ongoing liability Agreement that upon successful closing, borrower will be entitled to receive relocation assistance of up to $ Notification that the servicer may allow for some portion of the gross sales proceeds may be paid to subordinate lien holders Notification that transaction may have tax consequences Notification that servicer may require payments be made during listing period equivalent to 31% of gross income Agreement that as long as borrower performs with terms of SSA, servicer will not complete foreclosure sale. Requirements Of Short Sale Agreement

Sign and return the SSA within 14 days Provide all qualifying financial information and sign required documents Cooperate with listing broker and be responsive to servicer Maintain the interior and exterior of the property Provide clear and marketable title (assist servicer in identifying and providing info) Make monthly mortgage payments required under SSA Obligations Of The Seller (And Realtor) Involved

Within three days of the offer, broker must submit a Request for Approval of Short Sale (RASS) and include: Sales contract and all addenda Buyers documentation of funds or pre approval on loan All information on subordinate liens What Happens When You Get An Offer?

Defined approval/disapproval response timeline TEN BUSINESS DAYS Delegated authority for approval Defined time to close Minimum 45 days from sales contract Servicers Obligations After Offer Submitted

Submit Alternative Request for Approval of Short Sale Servicer will require sellers be reviewed for eligibility and may be offered a loan modification You can assist by working closely with borrower to get all financial information gathered and submitted to the servicer What If You Already Have A Contract?

HAFA Foreclosure Alternative Incentives $ Relocation Inventive to the Seller on the HUD $ Incentive to Servicers for an approval Up to $ to the investor (1/3 of the payment to the junior lien holders) HAMP Modification Incentives : Servicers: $ for successful mod trial $ for IDI Loan Incentives: Other available incentives to servicers & borrowers if the modified payment reduction is 6% or more: Borrowers: “Pay For Performance” principal reduction incentive, of $ annually up to 5 year Servicers: “Pay for Performance” for three years, $1, annually HAMP / HAFA Incentives

Junior Liens HAFA allows for junior lien holder to be paid no more than 6% of the UPB with a cap of $ Split amongst all junior lien holders Junior lien hold may not require contributions from agent or seller as condition of releasing liability Mortgage Insurers Mortgage Insurers cannot request contribution from the borrower Title Issues Imperative that you look at title up front. Focus on deals that can be done Borrower/Property Eligibility Borrower Cooperation Impediments To Short Sale Success

Realtors can assist borrowers with this process in the following ways: Stress the importance of providing all required documents to the lender in the timeline required. Assist with hardship letter If you suspect they have reserves, tell them up front to expect to make a contribution Advise/counsel borrowers on accuracy of income docs Ensure that they make all required payments during the listing period if required to do so. What Can You Do To Help?

Explain the Short Sale Agreement (SSA) Set reminders and stay on top of the borrowers for their obligations Thoroughly document property deficiencies for lender Be attentive to the listing timelines and aggressively market the property Work very closely with the buyers realtor and make sure their buyer is prequalified. ORDER AND REVIEW TITLE IN ADVANCE Assist the seller in identifying and clearing those judgments and liens Find out if the loan has mortgage insurance Be polite, courteous and helpful. What Can You Do To Help?

Managing Expectations Misinformation Volumes – requests for help, follow up phone calls Switching gears to this new program Clarifications and changes Prior agreements The role of increasing unemployment or underemployment in resolving defaults Sources and forms of borrower information: paper, , phone, fax, image. No standard form. If you can’t map it, you’re talking manual entry. And that means delay. Burnout Training expanded staff Borrower engagement Borrowers have to want help Documentation Borrowers have to submit the required documentation Borrowers have to be cooperative, whatever option is chosen Servicer Challenges

Home Affordable Modification Program – March 2010 Number of Eligible 60+ Day Delinquent 3,398,612 Number of Trial Period Plan Offers Extended to Borrowers (Cumulative) 1,436,802 Number of Trial Modifications Started (Cumulative) 1,166,925 Pending Permanent Modifications 108,212 Permanent Modifications 227,922 Huge Undertaking

HAMP Participating Servicers Approximately 85% of eligible mortgages are covered by HAMP participating servicers 109 servicers have signed servicer participation agreements to modify loans under HAMP and will have to comply with HAFA. These participants service loans owned or guaranteed by Fannie Mae or Freddie Mac, loans in portfolio or loans serviced on behalf of others. Approximately 2300 participants service loans owned or guarantee by FNMA or FHLMC. These servicers automatically participate in HAMP. HAMP Servicer Coverage

Participating Servicers

Not getting timely answers? There will be a formal audit process from the HMP compliance agent, Freddie Mac. What If You Have A Problem With A Participating Lender?

Questions?

For more information, please contact: Susan Wilkins VP, Strategic Alliance Manager Stewart Title Guaranty Company Tel: