Details on HUD Emergency Homeowners Loan Program

On October 5, 2010, HUD released details about the $1 Billion Emergency Homeowners Loan Program (EHLP) authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

EHLP will offer declining balance, deferred payment “bridge loan” (non-recourse, subordinate loans with 0% interest rate) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Borrowers living in the following jurisdictions are eligible to receive funds through the EHLP:

TX	Texas	$ 135,418,959
NY	New York	$ 111,649,112
PA	Pennsylvania	$ 105,804,905
MA	Massachusetts	$  61,036,001
WA	Washington	$  56,272,599
MN	Minnesota	$  55,848,137
WI	Wisconsin	$   51,540,638
MO	Missouri	$   49,001,729
VA	Virginia	$   46,627,889
CO	Colorado	$   41,286,747
MD	Maryland	$   39,962,270
CT	Connecticut	$   32,946,864
KS	Kansas	$   17,748,782
AR	Arkansas	$   17,736,991
IA	Iowa	$   17,379,343
LA	Louisiana	$   16,691,558
UT	Utah	$   16,577,582
OK	Oklahoma	$   15,575,381
PR	Puerto Rico	$   14,714,668
ID	Idaho	$   13,284,075
NH	New Hampshire	$   12,655,243
NM	New Mexico	$   10,725,515
ME	Maine	$   10,379,657
WV	West Virginia	$     8,339,884
NE	Nebraska	$     8,304,512
HI	Hawaii	$     6,292,250
DE	Delaware	$     6,048,577
MT	Montana	$     5,710,580
VT	Vermont	$     4,830,215
AK	Alaska	$     3,890,898
WY	Wyoming	$     2,346,329
SD	South Dakota	$     2,051,563
ND	North Dakota	$     1,320,547
Total:		$ 1,000,000,000

Program Administration

Delegated Approach: Borrowers who are listed in one of the above 32 states or Puerto Rico will meet with non-profit housing counselors who are part of the National Foreclosure Mitigation Counseling Program administered by NeighborWorks® America to receive funding.

The non-profit housing counselors will provide intake and outreach services including:

• (i) developing and disseminating program marketing materials, (ii) providing an overview of the program and eligibility requirements, (iii) conducting initial eligibility screening (including verifying income), (iv) counseling  potential applicants, providing information concerning available employment and training resources,  (v) collecting and assembling homeowner documentation, (vi) submitting homeowner application, and (vii) providing transition counseling to explore with the homeowner other loss mitigation options, including loan modification, short sale, deed-in-lieu of foreclosure, or traditional sale of home.

• The counselors shall also be encouraged to conduct outreach to entities in local communities to provide information on assistance available to unemployed homeowners through this program and shall publicize the list of entities approved to assist potential applicants with applying to the program

State Law Approach: Borrowers or state HFAs that operate loan assistance programs that are determined by HUD to be substantially similar to the EHRF program will receive allocations to fund emergency loans for borrowers in the states below:

Alabama	$60,672,471
California	$476,257,070
Florida	$238,864,755
Georgia	$126,650,987
Illinois	$166,352,726
Indiana	$82,762,859
Kentucky	$55,588,050
Michigan	$128,461,559
Mississippi	$38,036,950
Nevada	$34,056,581
New Jersey	$112,200,638
North Carolina	$120,874,221
Ohio	$148,728,864
Oregon	$49,294,215
Rhode Island	$13,570,770
South Carolina	$58,772,347
Tennessee	$81,128,260
Washington, DC	$7,726,678

Allocation of Program Funds

Recipient Geography: HUD will assist borrowers living in Puerto Rico and the 32 states otherwise not funded by Treasury’s Innovation Fund for Hardest Hit Housing Markets (Hardest Hit Fund) program.

Allocation Amount: The total amount reserved will be based on the state’s approximate share of unemployed homeowners with a mortgage relative to all unemployed homeowners with a mortgage

Targeting Funds to Local Geographies: HUD will provide information that identifies pockets within each of the designated states that have suffered the most from recent spikes in unemployment and/or mortgage delinquencies.  HUD will encourage the use of program dollars in these hardest-hit areas.

Homeowner Eligibility and Program Operation

Income Thresholds: Has a total pre-event household income equal to, or less than, 120% of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: Has a current gross income (income before taxes) that is at least 15% lower than the pre-event income.

• “Pre-event income”: the income prior to the onset of unemployment, underemployment, or medical emergency
• “Current income”: the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: Must be at least 3 months delinquent on payments and have received notification of an intention to foreclose.  This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least 3 months of missed payments and the mortgagee’s intent to foreclose.  In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least 3 months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by:

• The homeowner must have a back-end or debt-to-income (DTI) ratio below 55%

Back-end DTI ratio:

Total Monthly Debt Expenses ÷ Total Gross Monthly Income

• Total monthly debt expenses = mortgage principal, interest, taxes, insurance, & revolving and fixed installment debt

***Note: For this calculation, gross income will be measured at the “pre-event” level***

Principal Residence: Must reside in the mortgaged property and be your  principal residence.  The mortgaged property must also be a single family residence (1 – 4 unit structure or condominium unit).

Creation of HUD Note:  After the first assistance payment is made on behalf of the homeowner, the fiscal agent will create an open-ended “HUD note” and a mortgage to be  in the name of the Secretary HUD of sufficient size to accommodate the expected amount of assistance to be provided to homeowner.

Ongoing Qualification of Homeowner

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

• The maximum loan ($50,000) amount has been reached;
• The homeowner fails to report changes in unemployment status or income;
• The homeowner’s income regains 85% or more of its pre-event level;
• The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
• The homeowner defaults on their portion of the current first lien mortgage loan payments

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any)

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31% of gross income at the time of application, but in no instance will it be less than $25 per month

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a 2 month period.  In any event, assistance with monthly payments may not continue beyond 24 months

Repayment Terms

Transition Counseling:   The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner  to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deed-in-lieu of foreclosure, or traditional sale of home

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance.  The note and mortgage will be in the form of a 5 year declining balance, 0% interest, non-recourse loan, and the mortgage shall be in the form of a secured junior lien on the property

Terms for Declining Balance Feature:  No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan.  If the homeowner meets these two conditions, the balance due shall decline by 20% annually, until the note is extinguished and the junior loan is terminated

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor,  if, at any time during the 5 year repayment period, any of the following events occur:

• The homeowner no longer resides in the mortgaged property as a principal residence, but maintains ownership;
• The homeowner defaults on its portion of  the current mortgage; or
• The homeowner receives net proceeds from selling or refinancing debt on the home.

***Note: Net proceeds — after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold — will go towards paying down the HUD note.  In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released***

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives), which will not trigger repayment of the HUD note

• Underwater homeowners = homeowners with mortgage debt in excess of the market value of their home

Program Start Date

HUD intends for EHLP to begin taking applications by the end of 2010

$3 billion additional assistance for jobless homeowners

On August 11, 2010, the Obama Administration announced additional support to help homeowners struggling with unemployment through two targeted foreclosure-prevention programs.

Through the existing Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit Fund), the U.S. Department of the Treasury will make $2 billion of additional assistance available for HFA programs for homeowners struggling to make their mortgage payments due to unemployment. Additionally, the U.S. Department of Housing and Urban Development (HUD) will soon launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance – for up to 24 months – to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition.

“HUD’s new Emergency Homeowner Loan Program will build on Treasury’s Hardest Hit initiative by targeting assistance to struggling unemployed homeowners in other hard hit areas to help them avoid preventable foreclosures,” said Bill Apgar, HUD Senior Advisor for Mortgage Finance. Together, these initiatives represent a combined $3 billion investment that will ultimately impact a broad group of struggling borrowers across the country and in doing so further contribute to the Administration’s efforts to stabilize housing markets and communities across the country.”

Hardest Hit Fund

President Obama first announced the HFA Hardest Hit Fund in February 2010 to allow states hit hard by the economic downturn flexibility in determining how to design and implement programs to meet the local challenges homeowners in their state are facing.

Under the additional assistance announced, states eligible to receive support have all experienced an unemployment rate at or above the national average over the past 12 months. Each state will use the funds for targeted unemployment programs that provide temporary assistance to eligible homeowners to help them pay their mortgage while they seek re-employment, additional employment or undertake job training.

States that have already benefited from previously announced assistance under the HFA Hardest Hit Fund may use these additional resources to support the unemployment programs previously approved by Treasury or they may opt to implement a new unemployment program. States that do not currently have HFA Hardest Hit Fund unemployment programs must submit proposals to Treasury by September 1, 2010 that, within established guidelines, meet the distinct needs of their state.

The states eligible to receive funds through this additional assistance, along with allocations based on their population sizes, are as follows:

Alabama	$60,672,471
California	$476,257,070
Florida	$238,864,755
Georgia	$126,650,987
Illinois	$166,352,726
Indiana	$82,762,859
Kentucky	$55,588,050
Michigan	$128,461,559
Mississippi	$38,036,950
Nevada	$34,056,581
New Jersey	$112,200,638
North Carolina	$120,874,221
Ohio	$148,728,864
Oregon	$49,294,215
Rhode Island	$13,570,770
South Carolina	$58,772,347
Tennessee	$81,128,260
Washington, DC	$7,726,678

HUD Emergency Homeowners Loan Program

This new program will complement Treasury’s HFA Hardest Hit Fund by providing assistance to homeowners in hard hit local areas that may not be included in the hardest hit target states. Those areas are still being determined.

The program will work through a variety of state and non-profit entities and will offer:

• a declining balance
• deferred payment “bridge loan” (0% interest, non-recourse, subordinate loan) for up to $50,000 on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months.

Under the program, eligible borrowers must:

• Be at least 3 months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within 2 years;
• Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home;
• Demonstrate a good payment record prior to the event that produced the reduction of income.

HUD will announce additional details, including the targeted communities and other program specifics when the program is officially launched in the coming weeks.

Fannie Mae Launches Distressed Borrower Education Site

 

Fannie Mae launches a borrower-facing outreach site designed to educate distressed homeowners on potential retention strategies and foreclosure alternatives.

The online education resource — available in both English and Spanish — offers calculators to demonstrate to borrowers the mechanics of refinance, repayment, forbearance, and modification options if the borrowers would like to keep their home. In addition, it covers information on Fannie’s Deed-For-Lease program, which allows borrowers to become renters in the same property after pursing deed-in-lieu of foreclosure.

For borrowers who would like to leave their home, the online education resource offers possible options such as, a short sale and deed-in-lieu of foreclosure when you can no longer stay in your home but want to avoid foreclosure.

For borrowers who aren’t sure what the best option is for them, the Options Finder can assist you. By answering some questions, the Options Finder determines which option may be right based on your current situation.

When you need additional assistance, the Resources section offers the following and much more:

Fannie Mae Resources

Review what Fannie Mae is doing to assist homeowners and how they can help you.

Contact your Mortgage Company

Find and contact your mortgage company to discuss your situation.

Helpful Forms

Download forms to help you prepare for (and keep track of) working with your mortgage company or a housing counselor.

Calculators

Use the calculators to determine which scenario fits your needs.

Frequently Asked Questions

Search for helpful answers to some of the most common questions regarding your options.

Take Action – What You Should Do Next

Once you ’ve learned about options that may be available for your situation, it’s time to take action.

Step 1: Research

Be sure to bookmark the page and print the information on the option(s) that applies best to your situation. You will want to refer to this information when speaking with your mortgage company.

Step 2: Gather

Gather the information shown below. You’ll need this information handy so you can refer to it during your discussion with your mortgage company. Use the Financial Checklist to help get organized and prepared.

• Your mortgage(s): Loan number, past due notices, monthly statement, etc. for your first mortgage and second mortgage or other liens (if applicable).
• Your other debts: Copies of bills and monthly statements for all other debts such as credit cards, personal loans, auto loans, utilities, etc.
• Your income: Paystubs, unemployment benefits letter, alimony, child support, etc. for all borrowers on the mortgage.
• Your hardship: Explain your situation and any hardship that has affected your income or ability to make your payments, etc.

Step 3: Contact

Contact your mortgage company and ask them about the options that are available for your specific situation. Also ask for the name and/or employee number of the mortgage specialist who is helping you and be sure to give them your up-to-date contact information. Use the Contact Log to keep track of your conversations and follow-up items.

Step 4: Discuss

Make sure you are ready to discuss everything about your current situation—the more the mortgage company understands and the more accurate the information, the more they can help you find the right option.

Step 5: Confirm

Ask them to confirm your current situation to be certain there are no other issues. Make sure you understand the next steps involved and if there is anything you will need to complete for the specific option.

Home Affordable Unemployment Program (UP)

 

The Home Affordable Unemployment Program (UP) is a supplemental program to the Home Affordable Modification Program (HAMP) which provides assistance to unemployed borrowers. The Unemployment Program grants qualified unemployed borrowers a forbearance period which reduces or suspends their monthly mortgage payment.

***Note:  UP is for first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (Non Government-Sponsored Enterprises (GSE) Mortgages) or insured or guaranteed by a federal agency, such as the Federal Housing Administration (FHA).***

The program is effective for participating HAMP servicers on July 1, 2010; however, servicers may begin to offer UP earlier.

Eligibility

Servicers are required to offer UP when the following criteria is met:

• Loan is a first lien mortgage, originated on or before January 1, 2009, secured by a one- to four unit property, 1-unit of which is the borrower’s principal residence and the unpaid principal balance (UPB) is equal to or less than $729,750 on 1-unit properties (See Supplemental Directive 09-01 for amounts on 2 - 4 unit dwellings)
• Loan has not been previously modified under HAMP and the borrower has not previously received a UP forbearance period
• Borrower is unemployed at the date of the request for UP and is able to document that they will receive unemployment benefits or have been receiving unemployment benefits at commencement of the forbearance plan
• Servicers have the discretion whether or not to require a borrower to have received unemployment benefits for up to 3 months before commencement of the forbearance plan
• Borrower is either delinquent but has not missed more than 3 consecutive monthly payments or default is reasonably foreseeable

It is at the servicer’s discretion whether to offer UP if a borrower’s total monthly mortgage payment is less than 31% of the borrower’s monthly gross income.

Additional UP forbearance plan eligibility requirements include that the borrower:

• Makes a request before the first mortgage lien is seriously delinquent (before 3 monthly payments are due and unpaid). A request for UP may be made by phone, mail or email. Within 10 business days, servicers must confirm the receipt of the request with the borrower via mail or return email.
• Is unemployed at the date of the request for UP and is able to document that he or she will receive unemployment benefits in the month of the Forbearance Period Effective Date even if his or her unemployment benefit eligibility is scheduled to expire before the end of the UP forbearance period.

Terms

The UP forbearance period is 3 months or upon notification that the borrower has become re-employed; however, it can be extended in accordance with investor and regulatory guidelines.

The monthly payment MUST be reduced to 31% (or less) of the borrower’s gross monthly income. At the discretion of the servicer, monthly mortgage payments may be suspended in full.

Payment amount and due date, if any, is established by the servicer according to investor and regulatory guidelines.

Servicers are prohibited from:

• Initiating foreclosure action or conducting a foreclosure sale while the borrower is being evaluated for UP
• After the Foreclosure Plan Notice (FPN) is mailed
• During the UP forbearance or extension while the borrower is being evaluated for or participating in HAMP or HAFA following, the UP forbearance period

A borrower in a permanent HAMP modification that becomes unemployed is not eligible for an UP forbearance plan.

A borrower who was previously determined to be ineligible for a HAMP modification may request consideration for an UP forbearance plan if the borrower meets all of the eligibility requirements.

If the servicer is requiring a reduced monthly payment, the borrower’s reduced payment MUST be received by the servicer on or before the last day of the month in which it is due.

If the borrower fails to make timely payments, the UP forbearance plan may be canceled and the borrower is not eligible for HAMP consideration.

Reporting Requirements

To Credit Bureaus:

The servicer should continue to report a “full-file” credit report to each major credit repository.

HAMP 2nd Lien Modification Program (2MP)

 

***UPDATE:  Click HERE to view a 30-minute self-guided tutorial that provides an overview of the Second Lien Modification Program (2MP) for servicers of non-Government Sponsored Entities (GSE) loans.***

Note: If you are having a problem accessing the tutorial, email me at lauren@lossmitigationmasters.com

Many homeowners may be struggling to make their monthly mortgage payments because they have a second lien.  Even when a first mortgage payment is affordable, the addition of a second lien can sometimes increase monthly payments beyond affordable levels.  Second liens often complicate or prevent modification or refinancing of a first mortgage.

The 2nd Lien Modification Program (2MP) offers homeowners a way to lower payments on their second mortgage.  2MP offers homeowners, their mortgage servicers, and investors an incentive for modifying a second lien.  Servicers and investors may also receive an incentive for extinguishing a second lien, forgiving all of the debt a homeowner owes.

Homeowners must provide consent to share their first lien mortgage modification information with their second lien mortgage servicer, if they are different. Since 2MP is meant to be complementary to the Home Affordable Modification Program (HAMP), a homeowner must have their first lien modified through HAMP before the second lien can be modified under 2MP.

Under 2MP, with their investor’s guidance, a mortgage servicer may:

• Reduce the interest rate to 1% for second liens that pay both principal and interest (amortizing)
• Reduce the interest rate to 1% amortizing or 2% interest-only for interest-only second liens
• Extend the term of the second lien to 40 years
• If the principal was deferred (through forbearance) or forgiven on the first lien, a servicer must forbear the same proportion on the second lien; although a servicer may, in its discretion, forgive any portion or all of the second lien and receive incentives for doing so

A second lien is eligible for 2MP if:

• the corresponding first lien has been modified under the Obama Administration’s HAMP and the second lien servicer is participating
• it was originated on or before January 1, 2009
• it does not have an unpaid principal balance (at consideration for the modification) of less than $5,000 or a pre-modification scheduled monthly payment of less than $100
• it has not yet been modified under 2MP
• it is not subordinate to a second lien or is not a home equity loan in first lien position
• it is not a second lien on which no interest is charged and no payments are due until the first lien is paid in full
• the second lien servicer is in possession of a fully executed 2MP modification agreement or trial period plan by December 31, 2012; or the second lien is not insured, guaranteed, or held by a Federal government agency (e.g. FHA, HUD, VA, and Rural Development)

Examples

Family A: Amortizing Second Mortgage

In 2006: Family A took out a 30-year closed-end second mortgage with a balance of $45,000 and an interest rate of 8.6%.

Today: Family A has an unpaid balance of almost $44,000 on their second mortgage.

Under the 2MP: The interest rate on Family A’s second mortgage will be reduced to 1% for 5 years. This will reduce their annual payments by over $2,300.

After those five years, Family A’s mortgage payment will rise again but to a more moderate level.

	Existing Mortgage	Loan Modification
Balance	$43,942	$43,942
Remaining Years	27	27
Interest Rate	8.6%	1.0%
Monthly Payment	$349.48	$154.81
Savings	$195 per month, $2,336 per year for five years

Family B: Interest-Only Second Mortgage

In 2006: Family B took out an interest-only second mortgage with a balance of $60,000, an interest rate of 4.4%, and a term of 15 years.

Today: Family B has $60,000 remaining on their interest-only second mortgage because none of the principal was paid down.

Under the 2MP: The interest rate on Family B’s interest-only second mortgage will be reduced to 2% for 5 years. This will reduce their annual interest payments by $1,440.

After those five years, Family B’s mortgage payment will adjust back up and the mortgage will amortize over a term equal to the longer of (i) the remaining term of the family’s modified first mortgage (e.g. 27 years if the first mortgage had a 30 year term at origination and was three years old at the time of modification) or (ii) the originally scheduled amortization term of the second mortgage.

	Existing Mortgage	Loan Modification
Balance	$60,000	$60,000
Remaining Years	12	27 (term reset to the remaining term of the modified first loan)
Interest Rate	4.4%	2.0%
Monthly Interest Payments	$220	$100
Savings	$120 per month, $1,440 per year for five years

List of Participating Servicers

• Bank of America (including Countrywide)
• Citi Mortgage, Inc.
• Chase (including EMC and WaMu)
• Wells Fargo (including Wachovia)
• BayView Loan Servicing, LLC
• Servis One dba BSI Financial Services
• iServe Servicing, Inc.

More servicers will be added in the near future as they join the program.

For more information, contact your mortgage servicer.

Bank of America NHRP Enhancements FAQs

 

Am I eligible for the National Homeownership Retention Program (NHRP)?

First, Bank of America (BOA) Home Loans will need to determine your financial situation and hardship. Once BOA has your current financial information, BOA will evaluate the your loan for all possible home retention options so that you can determine which option might be right for you.

You may be eligible for the enhancements to the NHRP if you meet the following program requirements:

• Have a Countrywide subprime mortgage, a Pay-Option adjustable rate mortgage (ARM) or a prime two-year hybrid ARM
• Originated your loan on or prior to January 1, 2009
• Are 60 days or more delinquent or in imminent danger of default and the current loan-to-value (LTV) ratio is 75% or higher (The LTV ratio is the ratio between the unpaid principal amount of your loan and the appraised value of the homeowner’s home)
• Have a subprime hybrid ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset, and the LTV ratio at the time of the modification is 75% or higher
• Have a Pay Option ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset or payment recast, and the LTV ratio at the time of the modification is 75% or higher
• Have a property that is a 1-to-4 unit owner-occupied residential property
• For the earned forgiveness program, be 60 days or more delinquent and the current LTV ratio is 120% or higher
• For the negative amortization principal reduction program, be 60 days or more delinquent or be current but reasonably likely to become 60 days or more delinquent (i.e. facing imminent default) and the current LTV ratio is above 95%.

***Note: You may go online and fill out the Financial Worksheet to update BOA on your current financial situation. BOA will compare this information to all available home loan assistance programs***

Exactly what will BOA offer to eligible borrowers?

BOA Home Loans offers a range of modification solutions for customers facing financial hardship. The NHRP is one of the programs that BOA offer for customers with subprime loans, Pay-Option ARM loans or prime two-year hybrid loans who meet program requirements. Other programs, such as the Home Affordable Modification program (HAMP), are also available and designed to provide more affordable mortgage payments to customers facing financial hardship. Modifications will provide more affordable payments using a combination of the following:

• Reducing interest rate
• Providing a term extension
• Providing principal forgiveness or principal forbearance

Once the enhancements are launched, BOA Home Loans will both mail and call all eligible customers to collect the necessary information and determine if they qualify for the NHRP.

How do I know if I have a Subprime loan, Pay-Option adjustable rate mortgage (ARM) loan, or a two-year hybrid ARM?

If you are not sure what type of loan you have with BOA Home Loans, please call them at 800.669.6607 and they can provide you with that information.

***Note: Prior to calling, please print out the Call Information Sheet and take note of your account number and any questions you may have. You’ll be given a lot of information during your conversations. It’s a good idea to take notes for future reference***

How do I find out if I am eligible?

Click here to determine if you are eligible through the online questionnaire

How do I apply?

Please call BOA Home Loans Customer Service at 800.669.6607.

BOA Home Loans will also be contacting eligible customers to see if they are interested in applying for the program.

When will the program start or go into effect?

The program launched in 2008, and was enhanced in mid-May.

How will the NHRP use principal forgiveness to make my mortgage payment more affordable?

The NHRP looks at each customer’s situation and determines how they can provide you with an affordable mortgage payment. Depending on your situation, the NHRP may use principal forgiveness to do this. The NHRP may offer principal forbearance with an opportunity to earn principal forgiveness.

Principal forbearance provides temporary relief during a time of hardship. This means after demonstrating a hardship, BOA Home Loans will defer or postpone your mortgage payment for a period of time. For purposes of NHRP and the HAMP, BOA Home Loans offers interest-free forbearance to qualifying borrowers for the life of the loan. At the end of the loan term or at the time the loan is paid off through sale or refinancing, any remaining forborne amount must be paid by the borrower.

You may also qualify for earned principal forgiveness where a portion of the debt or loan amount is waived and you are no longer responsible to pay back that amount. However, you must remain in good standing on your payments or you will not receive forgiveness. The principal forgiveness occurs over 5 years. The amount of principal forgiveness that you can earn remains the same for the first 3 years. In the 4th and 5th years, the amount of forgiveness may be less, if an increase in the property value since the modification was made would result in your principal balance dropping below the current value of the property.

***Note: There may be tax implications. You may want to consult a tax professional regarding your individual tax situation***

I wanted principal forgiveness when I was reviewed for a modification and I didn’t get it. How do I get it now?

All BOA Home Loans modification solutions are designed to bring a loan payment to an affordable and reasonable amount that borrowers are able to sustain over time. If you have completed a loan modification or are currently in a trial period for a modification, your loan likely received a rate forgiveness and/or term extension in order to achieve an affordable and reasonable payment. Principal forgiveness is another tool to achieve this same result. In addition, under the federal government’s HAMP, you can only qualify for one modification, so if you are in a trial period plan or a permanent modification, you would not qualify for another modification.

However, BOA will consider the application of the principal reduction enhancements to potentially eligible trial and permanent modifications, and will notify eligible borrowers accordingly.

I am in my Trial Period and have not received my final modification yet. How do I get a principal forgiveness too?

If you are currently in a trial modification, a solution to bring your mortgage to an affordable and reasonable payment has been achieved and no additional tools (including principal forgiveness) would be necessary. BOA encourages you to continue making timely payments and to return all required, completed documents to ensure your trial will convert to a permanent modification, as you cannot be considered for another HAMP modification if you do not fulfill your trial modification requirements.

Two months ago this would have helped me but now my house is on the market for a short sale. How do I get a principal forgiveness and a modification now?

Even though you have started the short sale process, you can still be evaluated for a loan modification unless you have already been in a modification trial period or have received a permanent modification. If your financial situation has changed, BOA can collect your new financial information and reevaluate your loan for this program and other foreclosure prevention options. Please call BOA at 800.669.6607 to learn how to provide this new information.

This is something I asked for months ago, and now I am in foreclosure. What are you going to do for me now?

If your financial situation has changed since your loan was last evaluated for a modification, BOA can collect your new financial information and reevaluate the loan for this and other foreclosure prevention options.

What happens if I can’t qualify for a modification or a principal forgiveness?

Your loan will be considered for all modification programs available to you to help you achieve an affordable monthly mortgage payment. If you are not eligible for a loan modification, BOA can discuss other options.

What do I do if my state is not mentioned or included in this agreement?

Your state does not have to participate in the program for you to be eligible or considered for a modification. If you are a BOA Home Loans customer, BOA can discuss your situation and see if you qualify for NHRP or other modification options to assist you. Please call BOA Home Loans Customer Service at 800.669.6607.

I have a rental/vacation/investment property. Does that qualify?

No. This program is only for owner-occupied properties.

I have a Home Equity Line of Credit (HELOC) or second mortgage. Does the NHRP apply to that loan?

No, the NHRP does not cover HELOCs or second mortgages. If you have a HELOC or second mortgage with BOA Home Loans, BOA will review it when they review your first mortgage. If your HELOC or second mortgage is with another lender, you will need to discuss your options with that lender.

If your first lien is held by an investor other than BOA or one of its subsidiaries and you have a second lien on the property, BOA is unable to consider your first lien for modification under the new programs, but they will review your eligibility for another solution using HAMP or their proprietary modification programs.

Do I have to pay a fee to participate, or are there closing costs related to this program?

There are no fees assessed for participating in any modification program with BOA Home Loans.

What if I’m already in the foreclosure process?

You may still be reviewed for a modification. If you are eligible for one of BOA’s programs, your foreclosure sale may be placed on hold while BOA works to qualify you for the program and work through the modification process.  Please call BOA at 800.669.6607.

What if I’m current on my loan, but would like to be considered for this program?

Customers current on their loans may qualify for this program if they can demonstrate in good faith that they are reasonably likely to become 60 days or more delinquent as a result of a rate reset on a subprime loan or a Pay-Option ARM loan or prime two-year hybrid ARM, or a payment recast based on negative amortization on a Pay-Option ARM loan, and their LTV ratio is 75% or higher. You will be asked to provide financial documentation demonstrating financial hardship to qualify for the program. With respect to the recently announced principal reduction enhancements to the program, the negative amortization write-down solution is being offered to certain Pay Option ARM borrowers who are current on their payments but facing imminent default.

I’m current on my mortgage, but I owe more than my home is worth. Can I qualify for principal forgiveness?

If you are current on your loan, BOA will first evaluate you for the Home Affordable Refinance Program (HARP), which BOA is required to do under the government guidelines. If you do not qualify for a refinance, BOA will then evaluate your loan for the HAMP under Imminent Default if you have a financial hardship and will not be able to afford your current mortgage payment in the immediate future.

How long will BOA Home Loans offer this program?

BOA has expanded the program until December 31, 2012, six months longer than the original program date.

Bank of America Short Sale Process Presentation

 

 On April 8, 2010, Bank of America (BOA) executives held a webinar presentation for over 10,000 Realtors to discuss BOA’s short sale process.

Tip: Refer to the Equator Agent/Homeowner Guide for step-by-step instructions 

Summary

10 Tips to Avoid Delays in Processing Time

1. Review all documents and images for accuracy prior to uploading in Equator
2. Ensure that property is listed in the MLS
3. Negotiate external party fees prior to submission of HUD-1
4. Supply HUD-1 that is valid for at least 60 days
5. Ensure that agent and customer tasks are completed as timely as possible in Equator (i.e. accepting short sale assignment, submitting short sale offer, and uploading offer documents within 7 days)
6. Only submit fully executed purchase offers with all appropriate addendums signed by both buyer and homeowner
7. Work to get purchase offer representing the best possible fair market value and highest net proceeds for the lender
8. Set appropriate expectations with buyers/sellers so they understand the complexity and resulting length of time a short sale can take
9. Work to get a release on outside liens as early as possible
10. The following situations will cause delays: (1) Change in buyer or agent at any time during the process; (2) Customer files bankruptcy; (3) Deal change after the approval letter is issued

Steps Already Taken to Improve the Short Sale Process

• Increased staffing and updated training
• Dedicated Short Sale Call Center:  1-866-880-1232
• Hours of Operation: 8 AM – 9PM (EST), Monday -Friday
• Extended Saturday hours – Coming Soon!
• Equator – primary tool for initiating the short sale
• Changed procedures to improve associate responsiveness
• Enhanced the procedure to proactively provide loan status

Steps Underway to Enhance Programs

Home Affordable Foreclosure Alternatives (HAFA):

• Implemented on April 5, 2010 and are following the HAFA guidelines 
• HAFA is first in short sale waterfall of options for a homeowner
• Remember: Some investors (Fannie Mae and Freddie Mac) are not participating; offering a cooperative or traditional short sale
• Proactive outreach to homeowners
• Offering a pre-approved short sale solicitation 
• After offer is submitted, approval within 14 days
• Promissory Note – Not required with HAFA 
• Homeowner required to clear second liens
• Homeowner leaves the home – no deficiency and no contribution

Cooperative Short Sales:

• Similar in approach to HAFA but wider in scope
• Includes homeowners who are not eligible for HAFA – non-owner occupied, jumbo loans, Fannie, Freddie
• Currently in pilot stages with rollout expected 2^nd Quarter of 2010

Steps Underway to Educate Agents

Education Materials:

• Overview of the process so agents can lead process
• Step-by-Step Guidelines for working through the system as an agent and homeowner
• Tips to avoid common problems

Outreach Events to Distribute Materials

• Large Realtor Events
• Webinars
• Participation with Short Sale Certification Programs

Want Agents’ Input

• Developing mechanisms for on-going feedback on process, systems, materials
• Will act on feedback with continuous improvements

Introduction to Equator

• 24/7 access to the short sale system
• Status tracking
• Direct communication with the Short Sale Negotiator
• Documents are uploaded directly to Equator instead of faxing
• Streamlined approval process
• Historical view of offers and counter offers

Coming Soon in Equator:

• There are a few specific loan investor types (i.e., FHA/VA) that are not on the Equator system and will be added at a later date
• Agent feedback, homeowner feedback, and internal data is being leveraged to identify system and/or enhancements for future process rollouts and educational material improvements

Agent Communication within Equator

• Throughout the process you will receive notifications of the status of the short sale. The system automatically tracks the agent, customer, and bank tasks and will alert you after key milestones have been achieved and to let you know the next steps.
• For specific questions/concerns you have, the negotiator assigned to the short sale is your primary contact.
• Please ensure when sending a message in Equator you only select “Negotiator”.
• We request that you only send messages via Equator and not directly through email. This enables our associates to effectively manage the case load and respond to agent inquires in a timely manner.
• If you have submitted a request to the Negotiator via Equator AND there has been no response after 2 business days: You should escalate to a “Team Lead” by selecting this role in your message drop down menu.
• In the event of an urgent issue, such as, a foreclosure sale date within 48 hours: You should immediately escalate to the “Team Lead” and “Manager”; and also call the Short Sale support team at 1-866-880-1232. 

Bank of America’s Mortgage Modification Lottery

 

Bank of America (BOA) announced last week that it would begin cutting loan balances for distressed mortgage borrowers, and in the process created a lottery – if you’re lucky enough to be in its portfolio and smart enough not to pay your mortgage, you win.

Until now, big lenders and servicers, such as BOA, have only given principal reductions to a microscopic number of borrowers — and only then as a last resort.

But they’re now having to play catch up to a new kind of mortgage servicer — a so-called “specialty servicer” — that is seeing success in avoiding foreclosures.

They handle the worst-of-the-worst, loans at least 90 days late, and one of the tactics they have used is offering principle reductions.

Of course, few mortgages end up in the hands of these speciality servicers, and whether yours lands with one is really just the luck of the draw. But now BoA is taking the practice mainstream, and not surprisingly more loans are going 90 days late.

What are Servicers?

Unlike the person who owns your mortgage, either the bank (rarely) or a group of investors (more common), mortgage servicers are the companies that handle the day-to-day administration of mortgages. They collect payments, maintain escrow accounts and confront borrowers about late payments. They also initiate the foreclosure process when borrowers default.

Most servicer operations were set up in better times, when nearly everyone paid their loans regularly. But when the foreclosure crisis hit, they had to scramble to keep up with the added workload of managing non-performing (bad) loans.

As a result, dozens of specialty services have sprung up to take on these difficult jobs. They mostly deal with loans 3 payments or more late, which is about 5% of all mortgages, according to the Mortgage Bankers Association (MBA).

“Some lenders are so large they can’t handle delinquencies efficiently,” said Rick Smith, CEO of Marix, a specialty servicer. “They’re reaching out to [firms] that specialize in non-performing  (bad) loans.”

Plus, he added, companies don’t want to staff up for what is hopefully a temporary problem. “If you hire 500 people to handle it and then the economy improves, then you’re overstaffed by 500,” Smith said. 

When can they cut the principal?

Sometimes investors purchase whole portfolios of bad loans. These hedge funds and other groups don’t service the loans themselves and their chief aim is to get the mortgages to pay off again. So they hire one of the specialty servicing firms and give them a lot of leeway to get the loans back on track.

One of their main solutions is cutting the principal balance so that homeowners no longer owe more than their houses are worth.

“Our clients would rather do a principal-reduction than an interest-reduction workout,” said Gagan Sharma, CEO of BSI Financial. “Many bought the loans at discount so they’re happy to pass the savings down to consumers.”

This encourages people to keep paying loans rather than walking away. If property values increase, the owners can turn a profit when they sell.

Conventional servicers have been loathe to cut principal because the investors who actually own the loans don’t want to accept immediate losses and lenders don’t want to encourage more people to press for reductions.

In fact, less than 2% of trial loan modifications under President Obama’s foreclosure-prevention plan, Home Affordable Modification Program (HAMP), have cut the balance owned.

Loan Balance cut in half

It doesn’t always work out so smoothly, however, because borrowers are hesitant to return phone calls or answer letters; sometimes they think the servicers are a scam.

“We have a hard time getting people to respond,” said Vicki Lester, president of Mortgage Servicing at RoundPoint. “Borrowers are still in denial.”

To get to people they start with a call campaign and then they mail out welcome letters and information packets. “Where all else fails, we send out people to knock on doors,” Lester said.

So, the servicers remind, if you’re lucky enough to win the modification lottery, please answer the phone. Talking to someone could mean cutting your loan balance and saving your home.

Making money on a short sale?

Not every home can be saved and specialty servicers employ strategies other than principal reduction. For example, short sales — often with a twist.

Some specialty servicers have a short-sale program in which it pays borrowers a percentage of any price they sell the house for over a “quick sale value.”

For example, if they determine that a normal market value for a house is $200,000 but to sell it quickly the price would have to be $180,000, they give the borrower 3 months to sell the house for whatever he or she can get.

The servicers share with the borrowers anything over the quick sale price. Borrowers may keep 30%, even 40%, of the overage.

Summary

Now that BoA has made the practice widely known, we can expect a lot more lottery winners. So it seems that BOA is implying that if you don’t like the terms of your mortgage,  just stop paying!

How to Determine A Short Sale Offer

The word “short sale” has certainly been a buzz word in the distressed real estate market we are experiencing now. However, many Realtors and investors are still unclear on how to determine a real estate short sale offer that is acceptable to the lender.

The following steps are to be used as a basic guideline on determining what to offer the lender for a short sale acceptance.

Step 1: Determine Fair Market Value (FMV)

The FMV can be determined by evaluating pending and sold comparable properties in a similar or close proximity to the subject short sale property.

A realtor will have access to the MLS (Multiple Listing Service) and can create a CMA (Comparative Market Analysis) for the subject property. This analysis will identify pending and sold comparable properties with same square footage, bedrooms, baths, garage and other similar characteristics as subject property.

Request the Realtors use a sold time frame within 3-6 months when pulling properties in the immediate or surrounding areas. Usually the short sale lender will not consider any sold comparables that are older than 12 months and that are further away than 2 miles from the location of the subject property.

Step 2: Evaluating Sold Comps Systematically

Contrary to popular and often misguided belief, you can use a formulaic system to work in your favor when determining what to offer on the short sale property. This system has been around for years, but for some reason you may have not heard of it mentioned dealing with real estate. Here is the system. You will use the law of averaging. The way this works is like this.

Let’s say you have 8 sold comparables that are all similar in size, square feet, bedrooms etc. Here is how you apply the formula. You would take out the two highest comps and the two lowest ones and average the rest.

EXAMPLE:

You have a property you think is worth $145,000.

You have a Realtor pull a CMA and you find 8 sold comparable properties that match the criteria above.

The MLS shows the following:

• $159,000
• $154,000
• $153,000
• $161,000
• $148,000
• $143,000
• $146,000
• $151,500

Using the formulaic approach you would take out the two highest sold comparables ($159,000 and $161,000). Then take out the two lowest sold comparables ($143,000 and $146,000). This would leave 4 other sold comparables.

• $154,000
• $153,000
• $148,000
• $151,500

You would then take an average by simply adding up the sum of all the sold comparables and dividing them by the total number of properties left. In this case, that number would be 4.

Total: $606,500 / 4 = $151,625

You can reasonably justify the house may sell for $151,625 instead of the $145,00 you originally estimated.

Step 3: Revealing the After Repair Value (ARV)

This terminology is slang often used with real estate investors. It is similar to the FMV with a few differences made up by the amount of repairs the investor estimates the property needs in order to sell quickly on the open market using FSBO (for sale by owner) techniques and not using the MLS.

It can be argued the ARV is more of a guess or suggested value derived by using sold comparables from houses that were NOT sold by a Realtor.

One way to explain the difference is a realtor will typically use a FMV and a real estate investor may elect to use an ARV. An appraiser can use both value methods, but generally sticks to the ones that come from off the MLS. In my opinion…the ARV is a less accurate and dependable value than what come off the MLS.

Step 4: Figuring Out the Broker’s Price Opinion (BPO)

The BPO  is perhaps the single greatest value factor the lender will use to determine the acceptance of your short sale offer. The BPO is KING!

The BPO is a generalized opinion or value of a property the lender uses to determine what the short sale property is worth on paper. They are ordered by the lender and sent to a Third Party Company, such as BPO Direct, First America, LandSafe, etc. These companies have a list of realtors for each state. The BPO’s are ordered and conducted by a BPO Agent (who is usually a Realtor).

The BPO can be an Interior or Exterior type.

If an Exterior type BPO is conducted, it means the BPO Agent did not go inside the property to evaluate its condition. This could be due to the homeowner vacating the house or not being cooperative with the BPO Agent when requesting a time to come appraise the house.

Dealing with “Pretty House” type short sales (categories later defined), you will find the BPO will typically come in 10-20% lower than FMV or ARV. Based on this, you might consider offering 60% of the ARV or FMV value for your initial purchase offer. Of course, this depends on the amount of repairs needed for the property.

If you have what can be classified as a “Pretty House” short sale, which would show very little needed repairs, don’t expect to get a huge discount from the lender for it. If you cannot JUSTIFY a reason for the lender to accept either a small or large discount … don’t expect them to give one to you.

This also dispels the myth that all houses heading towards foreclosure are good short sale candidates. They are not always.

Here are some classifications and examples to make it easier to determine how much of a loss the lender may agree to accept.

Short Sale Classifications:

1. PRETTY HOUSE
2. UGLY HOUSE
3. SCARY HOUSE

EXAMPLES:

Pretty House: Generally in safe, desirable areas and houses selling fairly quickly

ARV/FMV: $100,000
REPAIRS: $5-10,000 (5-10%)
BPO: $80-90,000 (+/- 5%)

Ugly House: Generally a light rehab or fixer-upper, handyman special house in fair neighborhoods

ARV/FMV: $100,000 (With Ugly Houses this number tends to be the “as is” value instead of ARV)
REPAIRS: $11-20,000 (11-20%)
BPO: $80,000 (+/- 5%)

Scary House: Generally in areas that are not desirable, massive repairs needed, lots of crime isn’t uncommon

ARV/FMV: $100,000 (With Scary Houses, this value tends to be the “as is” value instead of ARV)
REPAIRS: $35,000 (21 – 35% +)
BPO: $65,000 (+/- 5-10%)

You can have a Scary House located in a great, fast selling neighborhood and combination of the others, but generally speaking, Scary and Ugly Houses will not be located in excellent neighborhoods. Remember this is a guideline, not an exact science. The BPO Agent will generally consider the “as is” value for both Ugly and Scary Houses.

Now let’s discuss the different loan types the lenders will consider a factor per short sale submission.

Step 5: Learning the Loan Types

When you learn these, you can increase your closing rate for lender accepting your short sale by as much as 50%! Here’s why: if you know more about any property, it provides you better leveraging and ultimately negotiation strategies to target. Not all short sales are created equal.

Conventional Loans

These loans are found all over the place. They provide the most flexibility especially dealing with short sales. Using the $100,000 example, you might start out your offer submitting 60% x 100,000 (FMV) = $60,000… The $60,000 is actually 70% of the BPO Price. However it is very common to see the lender accepting around 80-85% of the BPO price, which would be around $68,000 – $72,250.

This model can fluctuate a little bit, but this is a common average. The BPO (value opinion also considered the PERCEIVED value of the property) to the lender is the MAIN FACTOR. Therefore, in this example, if you thought the BPO was going to come in around $65,000 … You would take 82% of THAT number, which would be $53,300. The lender may very well accept $53,300 based on their perception of the value of the property (their asset).

FHA Loans

I repeat: this is not a scientific grading scale. It is the model used by many short sale investors as a guideline. You can and will have other factors that make you stray from this. If you are dealing with an FHA type loan or any government backed loan, they are going to recoup a set amount if the foreclosure is completed.

For example with FHA loans, the insurer will basically guarantee the lender 82% of an FHA Certified Appraisal amount. Notice, I did not say BPO. For these loans, you will need an FHA Certified Appraisal for the lender to consider in their evaluation process on the property. The BPO will not suffice on these types of loans. You can massage the numbers 1-2%, but 82% is listed in their guidelines.

• All FHA loans are insured by the federal government
• As long as the lender follows FHA guidelines, they are guaranteed 82% of the “as is” appraised value
• FHA loans do not use a BPO. Instead they will require an FHA Certified Appraisal. Use the same techinques on the FHA Certified Appraisal that you would for a typical short sale deal
• If the debtor is in bankruptcy, no short sale will be approved
• If the property was used as a rental for more than 12 months, no short sale will be approved
• If the homeowner does not occupy the property, no short sale will be approved (There can be exceptions to this)
• The cooperating lender is eligible to receive $1,000 from FHA for performing a short sale
• Seller MUST fill out FHA specific forms for approval. This will include an Application to Participate and a Homeowners Counseling Certificate, all of which the lender will supply in their FHA Short Sale Packet
• FHA loans must be at least 30 days past due for short sale consideration
• The lender is required to give a copy of the appraisal to the homeowner
• The homeowner can receive up to $1,000 directly from the HUD 1
• FHA will not go after the homeowner for a deficiency once the short sale is accepted and closed

Veteran’s Affairs (VA) Loans

These type of loans have a guarantee of 88% of the appraised value of the property.

• Designed for veterans
• These loans are federally insured
• VA guarantees the lender at least 88% of the “as is” appraised value
• A VA appraisal is usually automatically ordered once the debtor becomes 60 days past due
• The appraisal value can be appealed by the homeowner
• The VA will work the homeowner and do everything possible for the homeowner to retain VA benefits

Note: Absolutely NO BPOs allowed. All VA loans require certified appraisers to determine value.

Freddie Mac (FDMC) Loans

• FDMC will not allow the buyer of a short sale property to be anyone but an individual. This means the buyer on the Option Contract (Purchase and Sales Agreement) and HUD 1 CAN NOT be a company, LLC, trustee, or anything of the sort. The purchaser must be an individual name
• FDMC will almost always require that the property be listed with a realtor, which means they are going to ask for a Listing Agreement. If the offer nets the lender less than 92%, FDMC will require that the property is listed for at least 90 days before approval will be issued
• The lender has the authority to approve short sales at a threshold of 92% or higher. Anything lower than 92% must be approved by FDMC
• FDMC has a high customer service standard, which means that if the lender is not responsive to your offers, they are going to want to know about it. This creates another point of leverage to get your offer accepted

Fannie Mae (FNMA) Loans

• FNMA has a high customer service standard. If the lender is not responsive to your offers, they may actually step in and take over the short sale negotiation process
• The lender has the authority to approve short sales at a threshold of 90-92% or higher. Anything lower than 90% must be approved by FNMA
• FNMA rarely requires that the property be listed with a real estate agent
• FNMA will allow the lender the authority to approve short sales at a threshold of 90% or higher, but will also allow a heavier discount if needed

For Fannie Mae, Coventional, VA, & FHA short sales:

The buyer can be any entity, company, person or trust (the bank may require written proof of the company or of the trust). Most of the loans that you come across regarding short sales are going to be conventional loans.

Step 6: Memorizing the Minimum Accepted NET Offers (of the BPO or FHA Appraisal)

• VA = 88%
• FHA = 82%
• Freddie Mac (FDMC) = 92%
• Fannie Mae (FNMA) = 90 – 92%
• Convential Loans = 80% (no set limit)

IMPORTANT: Understand that these are NET percentages to the bank. If you have your offers padded with things like realtor commissions, closing costs and additional fees, these are NOT to be included in this percentage.

EXAMPLE: The BPO on one of your deals comes in $100,000. Offers that may be accepted based on the above criteria would be:

• VA = 88% = $88,000
• FHA = 82% = $82,000
• Freddie Mac (FDMC) = 92% = $92,000
• Fannie Mae (FNMA) =  90 – 92% = $90,000 – $92,000

Something else to consider is this: all LOCAL banks, usually the smaller ones, will almost always NOT ALLOW more than a 10%-15% discount off the property depending on the amount of repairs needed to fix. Local banks tend to be more conservative in their approach to discount the property. This is partly due to the network of local affiliates the bank can call to get more than one opinion of repairs needed or value of the subject property.

Step 7: Dealing with Second Mortgages & Junior Liens

If you are dealing with a 2nd mortgage holder, you are basically going to negotiate with them the same way.

You will find that many 2nd mortgage holders will not require as much information to make a decision quickly on discounting their loan amount. They will generally order a BPO or have an appraisal on file. It could be older or current. Make sure and ask about it depending on the numbers you find out dealing with them.

Sometimes a lender will actually tell you a BPO price.

Now before you get all excited and think that is GREAT…think again! Typically, they will LIE to you about the price and actually inflate it. Yeah…I know… you never thought lenders lied, did you? Well…they do…and they do it a lot.

When you are dealing with the 1st mortgage holder, it is not uncommon to find out they will only allow $500 – $1000 towards paying off any 2nd Mortgages, Liens, Judgments etc. All lenders are a little different, but the norm is $1,000.

This is another reason why you will deal with more 2nd position lenders that are willing to take pennies on the dollar to satisfy their loans with the homeowner. In fact, you will often negotiate for 80-90% discounts or get approval for 10-20 cents on the dollar! It can be beneficial if you get the 1st mortage holder to accept a short sale and then present that information to the 2nd mortgage holder IN WRITING! If the 1st mortgage holder is willing to take a hit, where does that leave the 2nd mortgage holder? This can be a powerful negotiation technique.

Remember, any junior lien-holder who is holding an over-leveraged or nearly over-leverage asset (the house) is in a HORRIBLE position. They realize this and if you can build a strong case why it would be in their better interest to discount their holding position rather than risk losing EVERYTHING at the foreclosure auction sale. It will not only generally help them, but it can make you, the investor, a HUGE PILE OF MONEY. Why? You just created equity out of thin air. That is the power of short sale negotiations.

In Closing….

If you take the steps for preparing a short sale offer exactly as shown above and apply them to your real estate short sale business; the sky is the limit for your continued success getting them approved.

*This article was adapted from REI Tips