The Investor’s Edge University

Hi Friends,

I have spent the past several days researching all the different government programs out there.

Here is a list.  They all seem basically the same to me…banks want to try a loan modification first and then a short sale will be super easy.  Find each of these on google and read the full details of the Bill.  Interesting reading - OK, I lied… BORING reading, but very educational:-). 

These are summaires…

FORECLOSURE PREVENTION PLAN – The administration’s housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced in February applied only to primary mortgages. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, including a home-equity line.

About 50 percent of at-risk borrowers have a second mortgage, which can make it difficult for them to afford their homes even after payments are cut on their primary mortgages. Second mortgages were popular during the housing boom for buyers who could not afford big down payments. 

Under the new plan, lenders would receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower would be eligible for $250 a year for five years to lower their principal balance. The borrower could have the interest rate lowered to 1 percent, depending on the type of loan, with the government sharing the cost of the rate reduction.

MAKING HOME AFFORDABLE PROGRAM –

The “Home Affordable Refinance” program will be available to roughly four to five million homeowners with “solid payment history” on existing Fannie Mae or Freddie Mac loans.

However, borrowers must also provide a letter of hardship, explaining a change in circumstances or a rise in payments that will lead to foreseeable default.

Meanwhile, the “Home Affordable Modification” will strive to help three to four million at-risk homeowners and those already in foreclosure by reducing monthly mortgage payments to as low as two percent.

 

Aside from all the guidelines and incentives previously mentioned, here are the biggies:

- There is no minimum or maximum LTV ratio for eligibility purposes.
- Loans can be refinanced or modified up to the current high-cost jumbo loan limit
- Loans originated on or before January 1, 2009 are eligible
- Borrowers must fully document income, sign an IRS 4506-T, provide two most recent pay stubs, most recent tax return, and sign affidavit of financial

hardship
- Loans must have been originated on or before January 1, 2009

 

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).

“Treasury announced today that the Making Home Affordable program will also include additional incentives for efforts made to extinguish second liens on loans modified under this program.”

 

HOME AFFORDABLE MODIFICATION PROGRAM – HAMP –

The program is effective immediately for mortgages originated on or before January 1, 2009, and will expire December 31, 2012.

• Properties are single-family 1-4 unit primary residences, including condos, cooperatives, Single-Family Seller/Servicer Guide (Guide)-eligible manufactured homes, and conforming jumbos. Servicers must verify that the borrower is occupying the property as a primary residence.

• First-lien mortgages owned, securitized, or guaranteed by Freddie Mac are eligible with current unpaid principal balances up to:

 

 1 Unit - $729,750

 2 Units - $934,200

 3 Units - $1,129,250

 4 Units - $1,403,400

 

• FHA, VA, and RHS guaranteed mortgages are eligible, subject to the relevant agency’s guidelines.

• Borrowers may be current or less than 31 days delinquent and in imminent default that can be documented, or 31 days or more delinquent.

• There must be affirmation of financial hardship.

• Borrowers who may be in foreclosure, in pending litigation involving the mortgage, or who are in active bankruptcy are eligible for this program.

• Mortgages can be previously modified, but borrowers may not have previously entered into a Trial Period Plan under the Home Affordable Modification program.

• Borrowers must currently have a monthly housing expense-to-income ratio greater than 31 percent.

 The program strives to create a more affordable first lien housing payment of principal, interest, taxes, insurance, homeowner/condo association fees, and escrow shortages that is as close as possible, but no less than, 31 percent of the borrower’s gross monthly household income.

 • Borrowers with a monthly total debt payment-to-income ratio equal to or greater than 55 percent must agree to enter free HUD-approved credit counseling.

• Servicers must proactively solicit delinquent borrowers, and may leverage program documents and tools. Servicers cannot solicit borrowers who are current or less than 31 days delinquent.

• Servicers should reduce the monthly mortgage payment using a sequential process that may include capitalization of arrearages, rate reduction, term extension, and principal forbearance.

• A Trial Period is required during which the borrower must remit the estimated new monthly payments. Servicers enter into a Trial Period Plan with the borrower during the Trial Period, followed by a Modification Agreement upon successful completion of the Trial Period.

• Borrowers and Servicers may receive incentives for timely payments, subject to certain requirements.

 

 FORECLOSURE ALTERNATIVES PROGRAM –

Responding to the call of the National Association of REALTORS®, on May 14, 2009, the Obama Administration announced incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP). For borrowers who are unable to retain their home under the Making Home Affordable Loan Modification Program, the servicer may consider a short sale or, if that is not successful, a deed-in-lieu of foreclosure. Participating servicers must comply with program requirements so long as they do not conflict with contractual agreements with investors. Since May, the Treasury Department has been developing guidelines and forms necessary to launch the program.

 

Borrowers (Homeowners). Borrowers/homeowners qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program but are unable to retain their home under the program. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

 

Incentives. Incentives include: (1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; (2) $1,500 for borrowers/homeowners to help with relocation expenses; and (3) up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).

 

Standardized Documents. The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.

 

Property Valuation by Appraisal or BPO. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.

 

Timeline. In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.

 

Commissions. The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.

 

No Borrower Fees. Servicers may not charge fees to borrowers/homeowners for participating in the FAP.

 

Program Expiration. The program is in effect through 2012.

 

Deed-in-Lieu of Foreclosure Option. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement (plus any extensions).

HOME AFFORDABLE FORECLOSURE ALTERNATIVES PROGRAM – HAFA –

Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

·     Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.

·     Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

·     Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).

·     Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).

·     Uses standard processes, documents, and timeframes/deadlines.

·     Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

 

From The Heart,

Dwan