It's a whole new world out there.

The loss mitigation industry, policies and procedures, and the general landscape of mortgage servicers is constantly changing.  Keeping track of all these changes can sometimes be a job all in itself.

In the past year the changing landscape of mortgage servicing has been in flux more than usual. Billions of dollars in Mortgage Servicing Rights (MSRs) have been being sold back and forth between mortgage servicers resulting in Servicing Transfers.  This is when the borrower receives notice that a new servicer will be handling their loan.  If you're in an active workout review like a short sale, this means at least a month delay while the loan is ported into the new servicer's systems and likely, you end up starting over from the beginning.  National Servicing Standards were put in place to eliminate these delays, but thus far they have not resulted in much success.

Another big development has been the sale of seriously delinquent loans to hedge funds by FHA, Fannie Mae and Freddie Mac.  All 3 of them have been pooling Billions of dollars in delinquent loans that are either insured by FHA or owned by Fannie or Freddie and putting them up for auction.  These are then bought by hedge funds.  This also results in the same type of servicing transfer as the MSR sales do.  However in these cases, the loans are now owned by a new investor, whereas a MSR sale is just the serving rights, the investor has not changed.

FHA, Fannie Mae, and Freddie Mac all have very details loss mitigation guidelines that the servicer has to follow and many of them have protections for the homeowner.  These guidelines require the servicer to attempt to work things out with the borrower before foreclosing.  Most also include that an approved short sale result in the settlement of the debt so that none of it is left collectible after closing.  This all goes out the window with the Asset sales.  There is talk about enforcing some level of responsibility to attempt a workout with the borrower on future sales, but past sales did not have that.  This has all resulted in some new servicers in the industry that are servicing the loans purchased by these Hedge Funds.  Many of these servicer push to foreclose or push for a deed in lieu of foreclosure rather than a short sale.  That is not to say they will not do a short sale.  But these servicers are more apt to go straight to talking deed in lieu with the borrower and totally skip the short sale option.

One positive result with some of these new servicers and these asset sales has been a shorter decision timeline than with most other short sales.  Not all are faster, but some of these new servicer care less about the financials of the borrower and more about what the offer is and what the market value is.  Remember that these loans are already seriously delinquent.  So this makes more sense since the likelihood of the borrower being able to cure the default on a seriously delinquent loan is pretty low.

HAFA short sale updates.

The HAFA short sale program also got a major update in Feb of 2015.  2 areas of the HAFA guidelines in particular were updated.

The 1st are is the amount of funds allowed to be offered to a junior mortgage.  Previous HAFA guidelines allowed for "up to $8500" to a junior lien.  $8500 was often the highest of any other short sale program, however in recent years many of the servicers have latched onto the "up to" language and have established lower caps.  These caps are typically a percentage of the Unpaid Principal Balance (UPB) of the junior mortgage.  These range to 6-10% of the UPB.  So a junior mortgage owned $30,000 may be offered just 10% or $3,000 rather than the $8500 max allowed.  This can result in the junior lien not accepting since the guidelines also require they forgive the remainder of the balance.

The updated HAFA guidelines allow for a Min of $12,000 to the junior lien.  As has happened with nearly all other HAFA guideline changes, not all of the servicers have correctly implemented the new changes and some are still trying to set a % cap that could be lower than $12,000.  These require escalation to the HAMP Solution Center and the Treasury Dept to get oversight involved.  Unfortunately that ends up causing more delays in the process.

The 2nd guideline that was updated was the Relocation Incentive that Owner Occupied sellers are eligible for on HAFA short sales.  This has been increased to $10,000 from $3,000.  I have seen no idication why this was changed.  But this is great news for those sellers who qualify.

Remember though that HAFA is now a small percentage of short sales.  Fannie Mae and Freddie Mac no longer participate in HAFA and neither do any Government Insured or Guaranteed loans.  So these are only conventional loans not owned by Fannie or Freddie and owned by participating investors and servicers.  So this is a small %.

Current Time-Lines.

Unfortunately time-lines for short sale approvals have not improved and in many cases have regressed.  Revisions to the FHA short sale guidelines in late 2013 added much complication to guidelines already riddled with red tape. So FHA loans take longer than ever to get short sale approval.

Many of the larger banks such as Chase, Bank of America and Wells Fargo have also reduced the size of their loss mitigation staff.  Over all they are seeing fewer applications for short sales due to recover on some of the country.  However areas of the country like here in CT have not seen price appreciation or job growth.  So we are seeing short sales as busy as every and the reduced staff levels at these servicers is causing delays.

In general the mortgage servicers are as dysfunctional as ever.  It is all too common for the servicers to deny files for incorrect guidelines.  I would say that we have escalate at least 75% of our files that would otherwise be denied if we did not know the correct guidelines and escalated to the appropriate dept or oversight agency.

We here are Loss Mit Services are busier than ever processing short sales.  We have added staff over the past year to help manage our caseload and not compromise our service.  We will continue to do so as needed and as always we strive to get every short sale approved.

Income Taxes

The last topic I want to discuss is the Mortgage Debt Forgiveness Act.  This act allows taxpayers who have had mortgage debt cancelled on a purchase money mortgage on their primary residence to avoid the possibility of being taxed on that debt cancellation.  This act was passed in 2007 and extended several times.  It expired at the end of 2013.  It was not extended until just a couple weeks before the end of 2014 and was retroactive to cover all of 2014.

We find ourselves again without this protection for struggling homeowners in 2015.  There are already bills in congress to extend this yet again.  However this was the same this time last year.  So though we expect that this will likely be extended again, it has yet to be and may not be till much later this year.

Sean Wilder

What does this mean and why is it important?

This act is what many short sale sellers use to avoid owing any taxes on the debt forgiven by their lender in a short sale.

You see, the IRS considers any forgiven debt to be taxable ordinary income, unless you qualify for an exemption.

This exemption was signed into law in 2007 and has been extended a few times as the housing crisis has continued.  It was most recent extended at the end of 2012, when it was set to expire, as part of the last minute fiscal cliff agreement.

So far there are no signs that it will be extended again and given the budget issues of the federal government, it is very possible it will not be extended again.

So what does this mean for you?

What this means is we have to do everything we can to get your short sale closed by 12/31/13 in order for the seller to be able to utilize this exemption to avoid potentially owing thousands of dollars in taxes to the IRS.

But it is only Aug... Why worry yet?

The reason I bring this up now is that it may already be too late.  The average short sale takes about 90 days from submission of an offer to when the approval letter is issued.  This process has been taking longer in recent months, not less.  Plus, after we have short sale approval it is often 30-60 days before the buyer's financing is ready to close.

So that means we are looking at potentially a 5 month process from Offer to Closing.  We have exactly 5 months left before 12/31/13.  So for some short sales, it may already be too late if they do not already have offers, or have circumstances that may cause their short sale to take more than 90 days to get approval.

So what can you do?

The biggest take away here is that we cannot sit on our hands when marketing these properties.  If it has been 2-3 weeks at your current price and there is no reason to believe an offer is coming, it is time for a price adjustment.  Right now sellers have no time to be waiting around for the perfect buyer at the perfect price.  They need the best offer they can get NOW.

This may mean that the offer you get could be a little lower than the very best offer out there.  And yes this may mean that the offer does not get accepted and the bank counters.

If they counter the buyer has the option to raise their offer.  We can also try to dispute the bank's opinion of value to reduce the counter.  But in the end, an offer may not be accepted.  At this point the seller typically has the option to ask the bank if they will accept a Deed in Lieu of Foreclosure (DIL) and basically give the bank the property in exchange for being relieved of their obligation to repay the loan.  In this situation there is still debt forgiven and if completed by 12/31/13 the seller still may qualify for the exemption.

In a DIL there is typically no commission meaning the agents do not get paid and neither does a debt negotiator like me.  But we have to be always looking out for what is in the best interest of the homeowner, not ourselves.  To that end we have to do everything we can to get the homeowner's debt forgiven and this situation resolved for them by 12/31/13 if at all possible.  It is just the right thing to do, even if not beneficial to us in the end.

The karma will come back to you 10 fold with referrals from grateful homeowners you helped.  Trust me.  I have probably earned more income from referrals from clients we helped but never got paid for, than if each of those transactions had resulted in a short sale closing and a check, rather than some other workout for the homeowner we did not get paid for.

So please keep this in mind moving forward for the rest of this year as it is very important to your clients.

Sean Wilder

Disclaimer:  These are my opinions and nothing here should be considered to be tax or legal advice.  All homeowners should consult with a qualified attorney and CPA when completing any workout option.

Over the past couple of months there have been a few major changes happening that affect short sales.  Not all of them for the better.

One common instance we are seeing is that many of the larger banks, that have had to settle with the government over foreclosure abuses, are service releasing large numbers of their delinquent loans to other services that are not bound by these settlement agreements.  This means many homeowners that are currently with a servicer that offers increased relocation incentives as part of that settlement, may find their loan is transferred and they no longer qualify for that incentive.  This transfer can even happen in the middle of a short sale, causing delays.

Another item we have seen, in particular with Bank of America but also with other lenders, is the forgiveness of some second mortgages in full, without a short sale.  This sounds great and is good when doing a short sale since you no longer have to negotiate with the second mortgage.  However, most of these loans that are forgiven are seriously delinquent and the banks know they will not recoup the money, or very little of it, anyway.  But by forgiving the full amount of it, they can "cook the books" for some of the foreclosure settlements requirements and take credit for a much larger principal forgiveness then they would seen from those loans anyway.

For short sales specifically the biggest change we have seen is the expiration of the Home Affordable Foreclosure Alternative (HAFA) short sale program for Fannie Mae and Freddie Mac owned loans.  HAFA still exists for the rest of this year for eligible loans not owned by the 2 GSE's.

With the expiration of HAFA for Fannie and Freddie came a new program called the Standard Short Sale program or HAFA2.  This program is open to many more homeowners than those that qualified for Fannie and Freddie's very restrictive HAFA program.  This new program also has some streamlined processed for seriously delinquent borrower with low credit scores.

However the program does have it's downside.  Firstly there is a new valuation process in use which is more commonly coming back with inflated values that are well above realistic market value.  This causes reasonable offers to be rejected because the banks are given a much higher Minimum Net requirement from Fannie and Freddie.  NAR and other industry groups are aware of this are attempting to have the FHFA , which is oversight for Fannie and Freddie, address this issue.  But for now we are stuck with it and it can be very frustrating.

Another negative to the program guidelines is that Waiver of the Deficiency balance is not guaranteed.  This means that not all sellers will be able to walk away from the remaining debt.  The new program has a detailed calculation that the lender must do to determine if the seller must be requested to bring cash to closing and/or sign a promissory note.  If the seller refused, the servicer no longer has the authority to approve the short sale on their own if the rest of the file is in line.  Instead they must send the file to Fannie or Freddie for their review and hopefully approval.  This is a negotiable term, but I have seen it go both ways already with some sellers being waived of this requirement and others having their short sales denied for not accepting.

The program is still very new so it is yet to be seen how common this is going to be, but it is here and we have to deal with it when it comes up.

Some other issues currently with short sales are seen with FHA loans. FHA is having serious cash reserve problems and may need to be bailed out.  Because of this, FHA has gotten much tighter on closing costs for attorneys and other fees.  In addition, Variance approvals for sellers that do not meet some of FHA's restrictive guidelines are being denied more often than in the past, likely in an effort to delay having to pay the insurance claim to the bank until later on when the property is foreclosed on.

A big take away from all of this is that we have to get involved with the servicer on the loan(s) as early as possible, preferably before there is an offer.  This way we can determine what kind of potential obstacles await us and can set the correct expectations for the process with all parties involved.

Sean Wilder

The Treasury Dept issued an updated Directive to HAMP and in turn HAFA back in March with an effective date of 6/1/12

Some welcomed news is coming to short sales, unless Fannie Mae or Freddie Mac owns your loan.

There are currently 3 different versions on the Home Affordable Foreclosure Alternative (HAFA) short sale program.  Fannie Mae and Freddie Mac each have their own program guidelines, and then there is Treasuries version that covers everyone else.

The Treasury version has been ever evolving since inception and for the most part those changes have been positive.

Up until now the 2 biggest reasons that borrowers did not qualify for HAFA were either that the property had been non-owner occupied for too long or the borrower's mortgage payment was lower than 31% of their Gross Income.

Both of these issues are being addressed in the upcoming changes.

Owner Occupancy

With these new revised guidelines there will no longer be any occupancy requirements for HAMP modifications or HAFA short sales for Non-Fannie Mae or Freddie Mac owned loans.  This means that even investor owned properties may qualify.

31% Gross Income Rule

This guidelines still exists.  However a new Tie 2 eligibility has been added that can be used to further evaluate borrowers whose mortgage payment is already below 31% of their gross income.  This will allow for more of their overall financial picture to be considered when determining if there is a financial hardship.

The bottom line is more non-owner occupied properties including properties that were never owner occupied and more financially strapped borrowers will qualify for HAFA.  HAFA gives a seller the best chance of walking away from a short sale with full forgiveness of debt.

Sean Wilder

Alright, so it has been way too long since my last post on short sales.  I totally apologize.

Today's topic is going to be on searching title.

In today's real estate environment there are a few things agents should be doing with their listings to cover their own "assets".  Asking the sellers about their mortgages and any liens is one of these.

You do not want to be the agent that takes the word of a seller that they have plenty of equity to sell without a short sale, only to find out a week before closing that it is not true.  This just doesn't look good for you or your brokerage and it can jeopardize your commission if the deal falls through.

Plus, there are many cases where the seller does not know that they have title issues.  Many people do not realize that small claims and collections judgments as well as medical judgments can be, and often are, attached as judgment liens to their property.

It is very important today that you research the title of your listings before taking the listing.  Many agents already go down to the town hall and pull the field card for the property and allot of agents also get a copy of the deed.  Some Broker's actually require this be in the file, as they should.

So while you're there you should be searching the title for mortgages and any other liens that may be on the property.

Many towns now have their land record index right online where you can search the title and get an index of what documents are recorded for that property.  A simple search like this can quickly reveal documents of concern such as; Judgment Liens, Tax Liens, Water or Sewer Liens, Lis Pendens, etc.

Now I am not saying that every Realtor needs to be a title search expert.  But a simple purchase date forward search of the land records can uncover any possible issues to your transaction closing so that they can be addressed long before the 11th hour before closing.

In the case of a short sale this is critical.  Any money judgments against the property need to be negotiated with the lien holders.  If we do not know about them, we can't negotiate them.  It is also very difficult to renegotiate with a mortgage company to pay a judgment after they have already approved a short sale and that judgment was not listed as an expense from the beginning.

On top of that, many judgments for credit card liens and medical liens are very difficult to get released for less than full payoff.  Spending months negotiating a short sale on a property that has unknown judgments on it that will doom the property to foreclosure, or the seller into bankruptcy, is not fair to all parties involved.  These need to be known up front so that if they are unwilling to negotiate, all parties know it sooner rather than later.

One of the most useful resources here in CT is Jud.CT.gov.  Here you can search by the seller's name and find foreclosures and lawsuits.  There are 2 areas to search.

Under the Case Look-up link on the left;

1. Civil/Family will find foreclosures, collections and divorces.  If the plantiff has the same last name as your client, it's probably a divorce

2. Small Claims will find all small claims files.

Any judgments for collections or small claims that do not show as satisfied are more than likely recorded as a lien on the property as well.

In addition to this resource, the town clerk's office will have any and all liens recorded against the property.  When searching though an electronic index the following guide of commonly used document short cuts may be useful.

ASN = Assignment, FCL = Foreclosure, IRS = IRS Tax Lien, JDG = Judgment Lien, LN = Lien, LPN = Lis Pendens (foreclosure initiated), MEC = Mechanics Lien, MTG = Mortgage, QTC = Quit Claim, REL = Release, SOJ = Satisfaction of Judgment, TXL = Tax Lien, WAR = Warantee Deed

This is by no means an exhaustive list and the short cuts differ from town to town.  You may also come across others that are less common.

But if you are fortunate, your listing will have 1 War, 1 or more MTG and that is it.

When processing a file for a short sale, we typically try to check any online resources available to us to investigate the status of the title.  But we rely heavily on the listing agent and the seller to inform us of any issues that need to be addressed in the short sale negotiations.  The only other alternative would be to require every single seller that we process a file for to pay for a title search on their property.  Since these issues come up without being presented to us by the agent or seller a small percentage of the time, we feel that would add cost to many sellers unnecessarily.

These issues can be easily discovered by a cursory search of the land records by the listing agent and many brokers already advise or require their agents to do so given the pervasiveness of title issues today.

So if you do not often take this extra step on your listings, I hope these suggestions cause you to consider doing so in the future to save yourself some future headaches.

Sean Wilder

So it has been over 2 months since the CT Depts of Banking and Consumer Protection confused the entire real estate community with a joint warning letter regarding Debt Negotiators in CT.

The letter dated 5/10/11 was apparently in response to one or more complaints brought about by the actions of one or more Debt Negotiators.  I do not know the specifics of the issues or complaints but can gather enough from the letter to know the actions indicated were not only bad business, but obvious to result in complaints.  We always strive for 100% transparency and disclosure with all parties involved and all our agreements are in writing.

In general the letter made it appear that all Debt Negotiators in CT may be violating the regulations.  It also suggested that if a debt negotiator were paid more than $500 from any party,the were violating the $500 max fee cap to the mortgagor and that real estate Brokers could not pay for the service.

This letter jeopardized the businesses of all Debt Negotiators in CT and the services they provide to their clients.

It has taken the Debt Negotiator industry over 60 days to get these state agencies to clarify their opinions on what we do.  Over that time we have had several phone and email conversations with both agencies.  This all culminated with a meeting, which I attended, with the Commissioner of the Debt Of Banking and several representatives of the Dept of Consumer Protection who attended on the behalf of their commissioner who could not attend.

This meeting was extremely helpful to all parties in clearing the confusion and both agencies agreed to address our concerns in writing by the end of this week.

On Monday 7/18/11 the Dept of Banking issued it's opinion letter. DOB Opinion Letter 7-18-11 The letter stated clearly that the fee cap of $500 for payments from the Mortgagor DOES NOT prohibit a real estate firm or any other person or entity who is not the Mortgagor from paying for Debt Negotiation services and that the $500 cap does not apply.  The $500 fee applies to payments for Debt Negotiation services paid for by the Mortgagor (seller) directly. So it is perfectly legal for a real estate firm to hire a debt negotiator who is properly licensed in CT to negotiate on their clients behalf in securing a short sale approval.  This service is provided to the real estate firm to accomplish a task that the real estate agent is either not properly equipped to do themselves, or simply does not wish to do.  It is also legal for that Broker to agree in writing to compensate the debt negotiator for this services contingent on the successful sale of the property.

On Wednesday 7/20/11 the Dept of Consumer Protection issued it's own opinion letter. DCP Opinion Letter 7-18-11 In it, the Dept of Consumer Protection states that "It is appropriate for real estate licensees to retain an outside party for the purpose of debt negotiation and those services fall within the scope of the debt negotiator's work." The letter also address how this "fee for ancillary service" should be paid.  1. The fee should be a dollar amount agreed to by the Broker and the Debt Negotiation company in writing and should not be a % of the sales price so as not to be construed as a commission split.  2. The fee should be paid by the Broker after closing.

These two letters finally put to rest the confusion resulting from the letter these agencies issued on 5/10/11.

It also seems that the actions of one or more debt negotiators has tainted the view of the industry by some.  This is very unfortunate for those of us who work within the laws and regulations we are governed by and strive to provide the very best service to the sellers' and real estate agents we serve.

It is unfortunate that it took so long to get these issues addressed but we have done our best during this time to not let this affect our clients.

Please contact Sean Wilder at Loss Mit Services for any questions about what this means for your clients.

Sean Wilder

These 2 "opinions" of value are not created equal.

So what is a BPO?

BPO stands for Broker's Price Opinion.  It is much like a CMA (Comparative Market Analysis) that an agent would do to help a seller determine their list price.

However, a BPO is done on the lender's own form and the lender dictates how it is done.  Unlike an appraisal that is done to specific standards that all appraisers must follow.

BPO requirements can often dictate that the agent must use certain kinds of comps, can't use other kinds of comps, and can or cannot make certain adjustments.  These limitations often can cause the value estimate to not match what a real world buyer is actually willing to pay for the property.

So why do lenders do BPOs instead of appraisals?

Easy....Money.  BPOs are less expensive to order and the lender can make the above mentioned restrictions on how the value is derived.

FHA and VA loans must order FHA and VA certified appraisals and cannot order BPOs.

But most other short sales end up with a BPO and not an appraisal.

Whether it be a BPO or appraisal, the value typically goes through some sort of audit when it gets to the lender.  This entails the comparison of that report with a desktop valuation and possibly a review of online comps.  Obviously this is done by someone that has not seen the property in person.  This process can also result in an inflated value.

So what can we do to avoid these inflated values killing our short sales?

The BPO is the most important part of the short sale.  We can do everything else 100% to the best it can be done and the BPO can still kill it.

So what do we do?

Firstly, the BPO agent cannot be allowed to just go to the property alone with no contact from the listing agent.  Who knows more about this property than the listing agent?  No one!

There are certain pieces of information that we want to make sure the BPO agent has access to to make their job easier and to make sure the take them into account.

1. The offer

2. The listing history

3. Relevant comps

4. Repairs

5. Showing feedback

We want the BPO agent to know that the property is a short sale.  They may think it is an REO.

We want them to see what prices the property did not already sell at.  If the property has already been on the open market and on the MLS at a price and did not bring offers, then the buyers out there today are not willing to pay that price for it.  And what is market value anyway?  It is what a ready, willing and able buyer is willing to pay.  So this should be the most important information available as to what the current market value is NOT.  Of course, not everyone agrees with me on that point.

We also want the BPO agent to know what the current offer is.  If the property was marketed for say. $100k then $90k and then $80k before getting an offer of $75k, wouldn't you think the current value is probably somewhere between $80-75k?  If it were more then why no offers before now?

It is a good idea to do your own comp research and supply that to the agent as well.  For all you know that agent is doing 10 BPOs today and has very little time to research comps.  Make sure they have as much info and have to do as little work on their own, in case they don't have time to do it.  Don't assume that someone else will care as much about this deal and your clients as you do.

Repairs.  This is a tough one.  If there are issues with the house that will make its value different then the comps available, we need to know how much that is worth.  This can be the hardest part.  BPO agents and Realtors in general are not well trained on estimating repairs.  Often buyers are not willing to do the leg work to get repair estimates either.  So this can be a tough thing to estimate.  But at a minimum we want a list of what is wrong so the BPO agent knows about it.  This is another reason why having the home inspection done before submitting a short sale offer can be very helpful.  Supplying the BPO agent with the deficiencies found in the inspection is great information.

So what happens when we do this and the BPO still comes in way above all reasonable offers?

We use all of the above mentioned information, and more, to dispute the value with the lender. Make no mistake, this is much harder to do than if the value had come in accurate to begin with.  But it is our last shot at saving the deal.

Some lenders will accept a well put together market analysis with photos, comps and a market description done by the agent to dispute the value.  I have had some very well put together packages done by the listing agent shave thousands of dollars off the lenders opinion of value.  Other lenders will only consider the buyer's lender's appraisal.  This creates another challenge where the buyer, or someone, has to be willing to pay for the appraisal.  And the lender wants the buyer's lender's appraisal, not just some appraisal that the buyer paid for directly.  They want to know it was as unbiased as possible.

So what else can we do?

Aside from the above mentioned items, there is one other thing the listing agent can and should do when time allows.  That is to set a marketing history.

How to set a marketing history.  As mentioned above, we want as much ammunition as possible to justify the offer as being current market value.  One of those pieces of information is the marketing history of the property.

If the property was listed at a "fire sale" price and received a full price offer the very first week, what do you think the first thing is that the lender will think? "You could have gotten more money."

We want to e able to show with the marketing history that we were NOT able to get more money or a higher offer.

No my usual rule of thumb is to start the listing about 10% higher than where you think it needs to be to get an offer.  Give it 3-5 weeks then lower it half way to that price.  Give it another 2-3 weeks then lower into that range you believe it needs to be in to get an offer.  If after another 2 weeks there are still no offers, continue to lower it.  Now this is different depending on the price range.  Higher value properties typically don't need to start a full 10% high, but this is just a rule of thumb.

This strategy helps to establish that the property could not sell for a higher price and, if we are fortunate, the offer that comes in will be relatively close to the listing price at the time.  This is also important as most BPOs do not come in lower than the price the property is listed at at the time the BPO is done.

In conclusion, never underestimate the importance of the BPO or appraisal that is done for a short sale.  That one piece of the puzzle can make or break your chances of helping your client.

Sean Wilder

on Dec 28, 2010 Supplemental Directive 10-18 was issued by the Making Home Affordable program.

These changes take affect Feb 1, 2011.

Many of these changes address negative issues that have limited this program up until this point and have disqualified many sellers.

Key Changes coming;

1. Vacant or rented properties will no longer be disqualified from HAFA so long as the property was the seller's primary residence within the last 12 months.
2. There will no longer be a requirement that the seller's current mortgage payment be greater than 31% of their current gross income.
3. HAFA no longer requires the sellers financials be reviewed for qualification.  However, the servicer or investor may still require it.
4. Payouts to subordinate liens are no longer limited to 6% of the subordinate liens outstanding principal balance.  The Max aggregate payout is still capped at $6,000.  It is now up to the investor to determine their allowable %.
5. Real estate commission cannot be cut to less than 6%, even when pre-applying for the program.  This was a major negative previously.
6. Servicers are now required to respond to short sale requests within 30 days, whether the files was pre-applied for or not.  We'll see about this one.  They don't meet the timeline requirements now, so I don't see that changing.

In all these updates to the program should remove some roadblocks that have disqualified seller's in the past.

Unfortunately, not all of the negatives to pre-applying for HAFA prior to having a purchase contract have been removed.

1. Seller's may still be required to pay mortgage payments equal to 31% of their gross income during the marketing period after pre-applying.
2. Lender's doing their value determination when the property has not been marketed and there are no offers from the market often come in higher than future buyer offers do.  So pre-applying is still a gamble when it comes to the lender's determination of value and should it come in high, limited ammunition is available to dispute it.
3. An value that come in higher than the market is willing to pay can doom a seller to having to accept a deed-in-lieu of foreclosure.  Having a full marketing history and offer to show the BPO agent is always the best strategy to combat and unrealistic value.  Whenever possible this is my suggestion.

I believe these changes to the program will allow many more sellers to sell their properties via a HAFA short sale which will afford them a full release of liability on the loan when the house sells.  This will allow them to move on with their lives.

On caveat to this update.  This update is for non-GSE loans only.  So these changes are for non Fannie-Mae and Freddie Mac loans.  The 2 GSEs have their own versions of HAFA and their own guidelines.  We will have to wait and see if they implement these changes also.

Sean Wilder

So being the end of the year I figured it is a good time to discuss in general what we are seeing in the industry as far as trends and timelines.

This year has seen a lot of changes mostly from Gov't intervention.  The largest of which was the HAMP program and then the addition of the HAFA program to it.

The HAFA program covers a huge majority of non-FHA or VA loans.  This means that if your seller doesn't have a FHA or VA loan it is very possible that they may be eligible for HAFA.

The biggest reason for a seller to want a HAFA short sale over a traditional short sale is the guarantee of a full release from the deficiency balance.  In a traditional short sale there is no guarantee of that and it is something we must vigorously negotiate for.

This program has great benefits for the homeowner but adds a lot of time to the process and has many pitfalls that we must avoid whenever possible.  So even though the intent was to streamline the short sale process, it is by no means an easy thing to work with.  That is of course unless you don't care about commission cuts, and required mortgage payments and deed-in-lieu requirements, etc.  But that is another discussion.

Now that this program is several months old we can look back and evaluate it and the general short sale process as a whole.

For the most part HAFA has added some extra time to the short sale process, even for loans that are not HAFA.

90 Days is about average for a traditional short sale but with some lenders 60 days is more common.  HAFA adds at least 30 days to that process and with some lenders as much as 60 days.  So much for streamline.

So on average we are looking at 60-90 days for non-HAFA and 90-120 days for HAFA.  Still no "short" process.  But we are seeing a good retention rate for buyers that have this fully disclosed to them at the beginning.

When the buyer knows up front that it will be 90 days before their offer is approved or denied, and they receive at a minimum a weekly update throughout that process, they are hanging in there.

This year we have had a better than 90 percent close percentage on our short sale files that have received offers.  Some of them may not have closed with the 1st buyer, but they closed.

Now those that never received offers.. there's not much we can do for those other than see if the seller qualifies for a Deed-In-Lieu of Foreclosure.  This is worse for the seller's credit, but not as bad as a foreclosure.  And of course we and you, the real estate agent, get the short end of the stick as we do not get paid.  But we did our best for the client.

Overall the short sale world has changed a bit this year but really just in the minutia of the process.  In the end it is still the same thing.  The seller needs a hardship and the bank needs to believe they are getting the best offer they could get for the property.  The rest is just paperwork, faxes and phone calls.. A lot of them.

My biggest take away from the past year is a suggestion that I have always made.  Get started as soon as possible.  Some of these available short sale programs allow us to start before there is an offer, saving time for the buyer.  Although that is not always advisable due to certain negatives.  But when we are fully prepared to submit a short sale package to the lender, before an offer comes in, we are all at a huge advantage.

Don't forget, even before you list a property that we are available to answer your questions and your seller's questions.  We want to be involved from the very beginning so we can help you to set the proper expectations with all parties involved and avoid any potential pitfalls that may be on the road ahead.

On a personal note I want to thank all of you who have used our service this year.  We have been able to help dozens of homeowners avoid foreclosure together over the last 12 months.

Here's to the new year and have a Happy Holidays from us here at Loss Mit Services.

Sean Wilder

Anyone that has dealt with Bank of America this year during a short sale has heard of Equator.com.  In fact some other lenders such as GMAC us this online platform as well.  But Bank of America has fully incorporated this system into their short sale process.  Let's talk about the system and how to use it properly.

Some people I have talked to just Love Equator because it is more hands off and requires fewer phone calls and no faxing to the lenders.  Others Hate it for the same reasons.

I myself just use it to the best of my ability and try my best to avoid it's negatives.

Eqautor.com, formerly REOTrans.com is an online interface used by Bank of America and others to facilitate communication and document collection between the seller's representative and the bank.  The system was designed assuming that the seller's representative who would be communicating with the bank would be their real estate agent.  This created some challenges for anyone that was not a licensed real estate agent to negotiate the short sale, such as an attorney or short sale negotiator.  Recently they have added access for attorney's but there is still no clear way to get an account if you are not an attorney or licensed real estate agent.  Good thing I have that license also.  We have been using Equator since Feb. 2010.

The key feature that many people love about this system is that you can initiate a short sale without calling the bank or faxing anything in.  You just enter in some information about the loan and once the file is opened, you upload your 3rd Party Authorization form into the system to be reviewed.

Once that authorization is accepted, tasks are assigned to you to upload short sale documents and enter the offer information.  You will need to have already prepared an estimated HUD-1 for this and gathered the buyer's name and address along with the contact information for their agent and lender.

There are some fields that are asked for that we usually do not enter the correct information and have never had an issue.  The system asks for the buyers first 5 digits of their social security number.  This is none of their business to start with and that limited information is useless anyway so we just enter 000-00.  Same goes for their birth date.  Just pick a random date.  We also use the area code and 555-5555 for any of the requested phone numbers except that of the buyers lender.  The person processing the short sale on behalf of the seller should be the only point of contact for any requests for information or documentation from the lender.  This avoids delays and confusion down the line.

After the offer is fully submitted a value is ordered and after that value comes back to the lender a counter offer is usually issued.  This is common and is a way for them to see if the buyer will come up any.

After the counter offer phase, and if the offer meets the investor's (who owns the loan) minimum net proceeds the offer is submitted for approval.

If approved the file moves to a closing officer and the short sale approval is issued.

This all sounds pretty simple and straight forward but there are things that can totally blow up your transaction.  All the hype that  Bank of America has put behind this system has lulled many into forgetting that you actually need to know what you are doing.  If you let the lender guide you through the short sale the way THEY want you to do things, you may not be protecting your client fully.

Here are some tips.

1. If possible, use the services of someone who is very familiar with the system and the lender.
2. Fax your authorization into the lender before initiating the short sale on Equator.  Call to verify it is on file and make sure the loan is to be processed through Equator.  FHA and VA loans along with some HELOC loans do not go through Equator.
3. Call Short Sale Customer Support if you aren't getting updates through Equator or responses to requests for updates.
4. Be sure to have everything you will need for the short sale before you initiate on Equator.  Equator tasks have expiration dates and if you fail to complete them in time, the file will be closed automatically.
5. If you know what closing costs the lender never agrees to pay, you can save a lot of time with the offer-counter offer process.

These are just a few tips of the many ins and outs it takes to successfully navigate this system on a regular basis.

Equator can be a great tool for speeding up the short sale process if you know how to use to its best.  We have had short sales approved using it in as little as 3 weeks.  But I have seen many agents get completely frustrated and huge delays caused due to inexperience with the system and the knowledge to work around some of it's challenges.  This is especially true of "unique" transactions where the developers of the system could not have foreseen your issues.

Hope these tips help shed a little light on this system.

Sean Wilder

Owner, Loss Mit Services

Call us with your short sale needs 860-265-3727