$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.

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!

Credit After a Short Sale vs. Foreclosure

 

One of the most commonly asked questions about a short sale is how it will impact credit and the ability to purchase a home in the future. Whether you are a buyer, seller or investor, it’s imperative to educate yourself on this all important aspect of credit to become fully informed before making a final decision or in order to assist sellers in determining the right course of action for their financial future.

Here to help sort through the confusion is a quick primer on credit after a short sale vs. foreclosure. Remember, every situation is distinctive so these estimates represent the average experience of most individuals.

Note: Depending on the situation, circumstances may vary.

Average Time to Rebuild Credit to Purchase a Home

• After a foreclosure: 5 – 7 years
• After a foreclosure with extenuating circumstances such as, but not limited to: disability, death of a spouse, etc: 3 – 7 years
• After a Deed in Lieu (DIL) of foreclosure: 4 – 7 years
• After a Short Sale: 0 – 2 years

Other Alternatives

The above averages represent typical buying patterns for those using regular lenders to obtain a conventional loan or government backed loans; private investors are still viable options that enable many people to purchase another home immediately after any type of financial fiasco, including foreclosure. However, mortgage rates tend to be less favorable and requirements more stringent than ever. Just a few years ago it was quite easy to obtain a sub-prime mortgage for a relatively low rate above the preferred status, but today, much of that has changed. While it is still possible to obtain the equivalent of a sub-prime mortgage, be prepared to come up with a much larger down payment and higher overall rates.

Short Sales Win Hands Down

Sellers wishing to minimize damage to their financial future clearly come out ahead when using a short sale but it’s still possible to further decrease the downside by avoiding a 60-day late payment, working closely with the lender to achieve a quick price agreement, and setting aside as much funds as possible for a new loan. In fact, homeowners that maintain a solid payment history and work-out an agreeable short sale deal early may find it desirable to downsize to a new home by setting aside additional funds equal to 20% down. With Private Mortgage Insurance (PMI) and a reduced debt-to-income (DTI) ratio, sellers are finding it possible to take advantage of lowered property values to immediately purchase another home for a fraction of the cost (and debt burden). 

Conclusion: It’s a win-win for all involved but, only if you understand the benefits and work aggressively to seal the deal.

*This post has been adapted from Real Estate News & Commentary by Chris McLaughlin