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2010 The Year of The Short Sale- Breaking news! – Supplemental Directive 09-09

Is your home upside down?  Do you feel locked in your home?  There is good news!

Is your home upside down? Do you feel locked in your home? There is good news!

Reuters reported, Treasury sets guidance to simplify “short sales”. The HAMP website released “Supplemental Directive 09-09” which is the new guidelines for servicers doing short sales (HAFA short sale details here – HAFA means Home Affordable Foreclosure Alternatives).

Short sale agents and distressed home sellers have been waiting for these guidelines with bated breath for some time and finally they are here.  These guidelines are fantastic news not only for upside down sellers but for Americans as a whole.  I have written several blog posts on this blog about how lenders have been purposely following policies that are allowing homes to foreclose.  Short sales provide hugely a beneficial solution to borrowers and investors however loan servicers that manage large loan portfolios have had little incentive to actually take proactive action to process short sales.  With “Supplemental Directive 09-09” all of this will change, or so we hope!

If you don’t want to spend half a day sifting through the forty three page HAFA short sale directive here is a quick summary of the benefits:

If this short sale program works... you might not need to feel so angry at your lender.

If this short sale program works… you might not need to feel so angry at your lender.

  1. Lenders will be preapproving short sales- What does this mean to you?  A big reason short sales fail is that lenders won’t work with agents to tell them what price they should list the property at.  Then when a real estate agent does get a great offer the lender takes 90 to 180 days to evaluate the offer and during that time the buyer walks and the property goes down in value another 20 percent. This won’t apparently won’t happen with this program implemented.
  2. Lenders must fully release borrowers– Many sellers biggest fear is that their lenders will come after them for the deficiency left over after a short sale.  As a short sale negotiation expert I always attempt to make sure that there are no ways the lender can come back and collect the deficiency on my client.  However there are some lenders that have standard non negotiable acceptance letters that they refuse to change that specifically reserve the right for further collection on that amount.  Some lenders will require the borrower sign a promissory note for that difference.  You won’t have to worry about any of these big fears.
  3. No more out of pocket demands from second lein holders–  Some lien holders have in the past asked for sellers to bring cash to close.  Now it will be NADA!
  4. 3 grand is maximum for 2nds 2nd lien holders and 1st lien holders have traditionally fought each other about how much the 2nd mortgage should get.  I have seen these battles cause short sales to turned down.  Now there is one less barrier to your home being sold on a short sale.
  5. borrowers can be paid up to 1500– That is right!  Sell your house and you get paid right out of closing to as a reimbursement for your moving expenses!
  6. response in 10 days- Of all the requirements… THIS IS THE BIG ONE!  A 10 days response will make short sales feel almost like an ordinary sale… except better because if you are selling on a short sale you have more freedom to price your property properly!
  7. no cutting commission- Sellers typically don’t worry about an agents commission.  However a well paid agent can afford to spend the time he or she needs to really take care of you.

So who qualifies for this program?  The following conditions must be met:

  1. Primary residence- The short sale must be the borrower primary residence.  This could be bad news for investors trying to get rid of their upside down portfolio as servicers will be rushing to meet the requirements for home owner occupants and investors may get ignored.  However I have feeling that what this will serve to do is to get servicers moving with a speedy processes that end up benefiting the investor looking to short sale his rental as well.
  2. Mortgage must be 1st lien and older than January 2nd 2009- So you folks that are buying right now know that this program might not apply to you.
  3. Verified hardship- The mortgage must be delinquent or default must be unavoidable in the near future
  4. Balance limit- The total delinquent balance must be equal or less than $729,750.
  5. DTI > than 31 percent gross income- That is right… your debt to income ratio (mortgage payment to total gross income) must be more than your 31 percent.  If that is not the case then the logic is that you should make the payments and keep your home through the HAMP modification program.  In fact before you participate in the HAFA program you need to be evaluated for eligibility in the HAMP modification program to see if you can keep your home.  However according to my reading of the program just because you could qualify to keep your home under the HAMP program does not mean that you cannot still participate in HAFA and short sale your home.

Time will tell how successful these directives are.  If your mortgage is a Fannie Mae or Freddie Mac mortgage then this program will available to you.  For some servicers it will be optional for them to participate in this program however it may make financial sense for them to do so.  Maybe not to because a lender may not feel the extra $1000 they get will overcome the extra costs and regulations associated with the program.

The effective date for the directive is April 5, 2010 however servicers can start earlier if they comply with all the requirements for reporting.

I noticed in my own short sale business that in the last week two of my Bank of America short sales have been moved to the Home Retention Division (HRD), an outside company which is a deceptively named so that you don’t realize you have been outsourced when you call in and you get transfered over to them.  Both of these loans were Freddie Mac loans and Freddie Mac announced a while back that they were contracting with HRD to help take the loss mitigation burden.  I suspect that one of the reasons that these loans were moved to HRD at just this time was to try and use HRD to meet the requirements of HAMP and HAFA because with an average short sale time of 6 months Bank of America is years away from being able to process a short sale in the required 10 days time.  Just a thought.

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Andy Morris is an Ohio real estate broker with an expertise in selling homes on a short sale. If your Ohio home is heading towards foreclosure or you owe more than your property is worth, please call Andy at 888-4-STOP-IT to see if you qualify for a short sale with your lender.

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