By: Joan Hertz
Last week a friend of mine gave me an article by Peter G. Miller, Realty Track, which I found very interesting and wanted to share with anybody that was interested. The below is information is provided by Peter G. Miller who is syndicated to more than 100 newspapers and operates the consumer real estate site, OurBroker.com.
On April 5th the Government instituted these new guidelines that should make the process of buying short sales easier and faster. The goal of the new rules is to reduce the numbers of Foreclosure Inventory by getting the Lenders to unravel the current short sale process that now can take months to close if they close at all.
The statistic from THE MORTGAGE BANKERS ASSOCIATION says that at the end of 2009 the overall foreclosure level was 10 times greater than traditional levels and to make matters worse , we have six states which represent 60% of the foreclosures nation wide according to RealtyTrac- California,Florida,Michigan,Illinois, Arizona and Texas.
Until now everyone that was encouraged to make short sales offers, found the process long, tiresome and sometimes never got resolved or approved.
Under the government‘s newly minted HAFA: Home Affordable Alternatives Program, the process of buying short sales will be much faster and easier.
What HAFA says is this: When a home is headed for foreclosure lender must get an independent valuation, usually a BPO-Broker‘s Price Opinion. The lender does not have to price the property at the estimated market value, however a sale price must be established and the price must be revealed to the property owner. If a buyer matches or exceeds the stated sale price the Lender must agree to a sale within 10 days.
“With the new HAFA plan the guessing game for short sales prices is gone and so are endless delays , says James Saccacio , Realty Trac’s chief executive officer.” The new system should keep a lot of homes out of the foreclosure process, help Lenders get realistic market prices and allow buyers to make logical and practical offers.
Seller Requirement:
HAFA is designed for borrowers who can’t get a loan modification under the government’s Making Home Affordable plan or who want out of their mortgage with a short sale or a deed in lieu of foreclosure. The catch is that not all properties or owners will qualify for help under HAFA.
• The property must be the borrower’s principal residence and not investment real estate or second home.
• The mortgage must be a first lien originated before January 2, 2009
• The mortgage must be delinquent or default must be a reasonably foreseeable.
• The unpaid balance must be no more than $ 729,750
• The borrower’s total monthly mortgage payment must exceed 31% of gross income.
Rules for investors
Not only are there rules for distressed borrowers, there are also rules for would-be purchasers. Deals must be arm’s length transaction and –here is a bigger objection for some investors-the property cannot be re-sold within 90 calendars days of closing.
Follow the money
What makes HAFA attractive for the lender is that they might get more through HAFA than foreclosures. If they get a bid they will have 10 days to find a better bid. The good news for lenders, buyers and owners, is that 10 days after a qualifying bid is received the deal is done and the property is sold.
In addition, financial incentives are built into the HAFA plan. There is $1,500 for borrowers at closing, something which may help them move. There is $ 1,000 for services to help them off – set processing costs.
How second lien holders will be treated is fuzzy. The HAFA rules say the “service will allow a portion of gross sale proceeds to be paid to subordinated lien holders in exchange for release and full satisfaction of their liens” – but the exact proportion is a matter of negotiation and no doubt in some cases negotiation will not be possible.
Subordinate lien holders say folks holding the second loan from a home purchased with piggy back financing – can get up to $ 3,000 from the first lenders, and lenders can get up to $ 1,000 from the government to offset such payment. Whether $ 3,000 will be enough to get second loan owners to give up their claim is unknown, but $ 3,000 maybe a lot better than a foreclosure where second lien holders get nothing. In addition to the $1,500 at closing, HAFA rules, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower”. Translation: Deficiency judgments won’t be an issue with HAFA deals, an advantage for distressed homeowners in the states which now allows all such awards.
Many loan owners will dislike the HAFA rules because by delaying the sale of distressed properties they have been able to hide losses. Now distressed property sales will be faster, meaning the lender books will show losses more quickly.
It is likely that the new rules will evolve into a lending standard for virtually all properties. The reason? Lenders and services won’t want to spend time or money figuring out which properties qualify under HAFA and which don’t it will be easier to just throw them all into one HAFA friendly process.
For specifics you can go to https://www.hmpadmin.com/portal/docs/hamp-servicer/sd0909
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