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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