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New Short Sale program for Homeowners coming April 5th

March 16, 2010

The Obama administration is getting ready to release yet another program to help homeowners that owe more than their homes are worth.  With only 16% of Americans able to take advantage of the loan modification program that was to help resolve this issue originally, the goverment is trying something new.  Unemployment is at all time highs and consumer debt is  increasing,  so many homeowners are trying to “save” their credit by doing a short sale…selling their homes for less than the value of their mortgage (as long as the lender agrees).

Currently, there has been little to no incentive for the loan servicers to take proactive action to process short sales.  With the HAFA Short Sale Directive, hopefully that will all change.  Below is a quick summary of benefits:

  1. Lenders will be pre-approving 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. 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 any longer.
  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. Not any more!
  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 gets to take advantage of 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 this may probably get servicers moving with 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- 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, from what I can tell 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.

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.  The government is still trying to get the backing of large banking institutions.  Then again, maybe not…a lender may not feel the extra $1000 they get will overcome the extra costs and regulations associated with the program.

Time will tell when this program rolls out April 5, 2010.

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