Here’s the scoop on HAFA Short Sale Govt. Program which kicked in on April 5th, 2010.  If you didn’t qualify for a loan modification under HAMP this could be the answer for you.

Read on for details of new HAFA program and how these new tweeks to the HAMP program may help homeowners avoid the damage of foreclosure while still getting out from under their mortgage burden which outweighs the current value of their home.  This program is being overseen by the Treasury Department and participation of lenders administered by Fannie Mae.

Details of HAFA

HAFA was introduced to simplify and streamline the short sale process. HAFA accomplishes this in the following ways :

• Compliments HAMP by providing viable alternatives for borrowers who are HAMP-eligible
• Uses standard processes, documents and timeframes
• Provides financial incentives to borrowers, servicers and investors
• Requires that borrowers be fully released from future liability for the debt
• Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis
• Allows the borrower to receive pre-approved short sale terms prior to the property listing
• Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement1 

HAFA provides financial incentives as follows: 

• Homeowners qualify for $3,000 (updated March 26, 2010; was previously $1,500) in Borrower Relocation Assistance after a short sale or deed-in-lieu has been completed (may classify as taxable income in some cases2)
• Financial incentives for servicers participating in the program include up to $1,500 (updated March 26, 2010; was previously $1,000) servicing bonus upon completion of a short sale or deed-in-lieu
• Financial incentives for investors include up to $2,000 (updated March 26, 2010; was previously $1,000) for those who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis3 
• Lenders pay all servicing fees — homeowners have no out-of-pocket expenses4 

Last updated: 1 April 2010

Sources:

1. Making Home Affordable. Supplemental Directive 09-09 Revised “Foreclosure Alternatives” p. 3 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
   • Updated: March 31, 2010
2. Making Home Affordable. Short Sale Agreement (Exhibit A) “Short Sale Program—Important Information” p. A-3 (2010): https://www.hmpadmin.com/portal/docs/hafa/hafaletters_ssagreement.doc
   • Updated: March 26, 2010
3. Making Home Affordable. Supplemental Directive 09-09 Revised “Incentive Compensation” p. 13 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
   • Updated: March 31, 2010
4. Ibid. “General Terms and Conditions” p. 12 

  All information courtesy of CDPE.com to provide reader with greatest reporting accuracy.

Come out of the Dark and Into the Light……

The current U.S. housing market and national financial crisis has caused untold stress and heartache for many American families. Foreclosure is one of the most devastating financial challenges that a family can face and one that many times can be avoided. The options available to Virginia area residents to avoid foreclosure are many. Following is a brief explanation of these solutions, including their benefits and drawbacks:

Reinstatement
A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

• Benefit: Does not require the mortgage company or lender’s approval.
• Drawback: Requires that a homeowner be able to pay all back payments, fines and fees.

Forbearance or Repayment Plan
A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

• Benefit: Allows the homeowner to make back payments over time.
• Drawback: Requires that a homeowner be in a financial position to pay not only their current mortgage, but also a portion of the back payments owed. Some mortgage companies will require a homeowner to ‘qualify’ for forbearance.

Mortgage Modification
A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

• Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
• Drawback: Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.

Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, is able to convert their property to a rental and use the rental income to pay the mortgage.

• Benefit: Allows homeowner to keep property indefinitely.
• Drawback: The issues that can arise with a rental property are many, and rent often does not cover the full cost of property ownership and maintenance.

Deed in Lieu of Foreclosure
Also known as a ‘friendly foreclosure’, a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

• Benefit: Many times in a successful deed in lieu, the lender will forego their right to a deficiency judgment.
• Drawback: Requires that a homeowner vacate the property, and a deed in lieu may be reported to credit bureaus as a foreclosure.

Bankruptcy
Many have considered and marketed bankruptcy as a ‘foreclosure solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

• Benefit: Does not require lender approval.
• Drawback: If a homeowner cannot afford their mortgage payment, a bankruptcy will only stall—not stop—the foreclosure process. Bankruptcy can be costly, is damaging to credit scores, and can only be declared once every seven years.

Refinance
If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

• Benefit: In some cases, this will lower payments.
• Drawback: In today’s market, a refinance will almost always raise mortgage payments, and is an expensive process.

Service Members Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Service Members Civil Relief Act. The American Bar Association has a network of attorneys that will work with Service Members in relation to qualifying for this relief.

• Benefit: If qualified, this will lower payments on all consumer debt in addition to mortgage payments.
• Drawback: Must be active military to qualify.

Short Sale Myths

A short sale can be an excellent solution for homeowners who must sell and owe more on their homes than they are worth. Unfortunately, a number of myths about short sales have developed, and it is important to understand the reality of this process should you find it meets your current needs.

Myth #1 – The Bank Would Rather Foreclose than Bother with a Short Sale

This is one of the most common misconceptions. The reality is that banks do not want to foreclose on your property because the foreclosure process is incredibly costly. Banks, investors, and even the federal government have all publicly stated that if a person is qualified for a short sale, the deal needs to be considered. Overwhelmingly, banks receive more on their investment through a short sale than a foreclosure.

The qualifications for a short sale include:

1. Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
2. Monthly Income Shortfall – “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

Myth #2 – You Must Be Behind on Your Mortgage to Negotiate a Short Sale

While this may have previously been the case, today lenders are looking for verifiable hardship, monthly cash flow shortfall, or pending shortfall and insolvency.

If you meet these three requirements and believe that you soon may be unable to afford your mortgage, act immediately. Any delay could limit your options. Do not wait until the countdown clock to foreclosure has started and you have even less time left.

Myth #3 – There is Not Enough Time to Negotiate a Short Sale Before My Foreclosure

This is a myth that probably hurts homeowners the most. Many do not realize that foreclosure is a process, and that there is time to make decisions that may result in better outcomes.

The foreclosing party—in most cases a lender—can stall a foreclosure up to the final day of the process. Today, many lenders will stall a foreclosure with as little as a phone call from you explaining that you are trying to sell, and almost all lenders will stall a foreclosure with a legitimate contract. For real estate professionals who understand foreclosures and short sales, there is time available until the foreclosure process is complete.

Myth #4 – Listing My Home as a Short Sale is an Embarrassment

It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, more than one out of eight homeowners in the U.S. is in the same situation. You are to be congratulated for admitting you need help, taking action, and finding a professional who can work with you toward a solution.

With recent estimates showing 40-60% of U.S. sales will be short sales or foreclosures, you are not alone.

Myth #5 – Short Sales are Impossible and Never Get Approved

This is a complete falsehood. Are short sales more difficult to execute? Yes. Do you, as a homeowner, need to learn about a new process? Yes. Are they impossible? Absolutely not.

For example, agents with the Certified Distressed Property Expert® (CDPE) Designation receive thousands of short sale approvals on a monthly basis. These professionals have undergone extensive training in methods to help homeowners in distress and process short sales. While there are no guarantees in any transaction, more and more short sales are being approved regularly. This is far from an impossible process.

Myth #6 – Banks are Waiting on a Bailout and Not Accepting Short Sales

You may have heard this, but the reality is that banks (and the U.S. government) are trying to do anything they can, within reason, to avoid foreclosing on properties. It is preposterous to believe they would deny a short sale in hopes that some future legislation would pass and pay them for losses.

Today, more banks are aggressively pursuing short sales and working with agents who understand how to process them. Freddie Mac recently hosted a national training Webinar for real estate agents where they expressly stated the organizational goal of “eliminating distressed assets through modification or short sale.”

Myth #7 – Buyers are Not Interested in Short Sale Properties

This is a myth that potential sellers hear all the time. Thankfully, this is just not true. In fact, many agents are getting calls from buyers who say they only want to look at foreclosure and short sales.

For buyers, short sales and foreclosures have become synonymous with “good deals.” More specifically, international buyers are targeting these properties. Listing with an experienced agent who is educated in the short sale process will provide you with a great chance of quickly seeing a contract on your property.

In conclusion, Agents with the CDPE Designation have been trained in all aspects of the short sale process, and know how to deal with the parties involved in foreclosures. We can explain what options you have, and get you on the path to recovery.

A short sale can be an excellent solution for homeowners who need to sell, and who owe more on their homes than they are worth. In the past, it was rare for a bank or lender to accept a short sale. Today, however, due to overwhelming market changes, banks and lenders have become much more negotiable when it comes to these transactions. Recent changes in corporate policy and the Obama administration have also improved the chances of getting a short sale approved.

But to be technical, here’s a more official definition:

• A homeowner is ‘short’ when the amount owed on his/her property is higher than current market value.
• A short sale occurs when a negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance of the loan at closing. A buyer closes on the property, and the property is then ‘sold short’ of the total value of the mortgage.

For homeowners to qualify for a short sale, they must fall into any or all of the following circumstances:

• Financial Hardship – There is a situation causing you to have trouble affording your mortgage.
• Monthly Income Shortfall – In other words: “You have more month than money.” A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
• Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. I hold the CDPE® Designation and am ready to identify all possible options and, when possible, assist in the quick execution of a short sale transaction.

If you have questions or feel you may qualify for a short sale, please contact me for a free consultation.

Understanding your options now could mean all the difference in the world.

Last year, so many people struggled with loan modifications. This year seems to be the year of the Short Sale. Many large banks are now turning there resources toward Short Sales and away from Loan Modifications.

Homeowners in the loan modification process have started receiving letters and/or phone calls advising that a Short Sale may be the next alternative. Here’s an example of how banks are doing this:

http://www.ft.com/cms/s/0/fd66e156-1b62-11df-838f-00144feab49a.html

Are you facing financial difficulties and needing advice on options available to you? Contact me today.