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.

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.

Workers.com has a pertinent blog post here which I found (Coalition wins foreclosure victories).

I think it highlights number one the importance of homeowners searching out help.  In one example a homeowner battled along with Michigan Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs and neighborhood activists to delay foreclosure and to modify her loan.  Together they picketed the aggressing lender, held rallies at the homeowners home and launched a massive telephone and email campaign to the lender CEO.

A word to homeowners… this type of thing doesn’t happen for homeowners that don’t reach out for help… you need to be active in defending the things you feel are important.

The Michigan Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs also had the following success:

“Attorneys who work with the coalition won a significant court victory on an appeal in a foreclosure eviction case. The Macomb County Circuit Court held that a lender’s failure to modify a loan in accordance with the federal Home Affordable Modification Program can be asserted as a defense to void a foreclosure, and that this defense can be raised by homeowners in an eviction proceeding stemming from the foreclosure. This is one of the first cases in the country to affirm this right.”

This is truly landmark IMHO.  I have never heard of this happening in Cuyahoga County or anywhere else for that matter.  I actually didn’t know that HAMP was a right for all borrowers however it makes sense that seeing most loans are federally insured or in some way subsidized these days that they should fall in line with HAMP and home owners should have a right to all of the privileges of HAMP.  I will definately keep my I out for this and hope to hear about similar cases in North Eastern Ohio.

On Wed 11/19/2009 I attended a community foreclosure help training for people in foreclosure hosted by the City of Brook Park.  I walked in and there was a room with about 80 seats there at the Brook Park City hall.  I was literally the only visitor who was not scheduled to speak that evening or was a seminar support person. I know that this seminar was promoted both in the newspaper and I believe in a comunity newsletter.  Yet for some reason no one showed up… which is very sad because the speakers all had resources in the form of knowledge and connections that woud have massively helped any person in foreclosure that might have showed up.  Previous similar seminars hosted by the City Of Brook Park were quite successful and many homeowners had showed up for help.

On the upside I personally got to network with the other proffesionals and government officials there and feel confident that I have made some beneficial connections that I can provide to the people that I run into that need help.  I specifically got to talk with Paul Bellamy who is director of the Cuyahoga County Foreclosure Prevention Program as well as several other people.

I asked Mr. Bellamy for further details about what kind of resources I should expect to be provided if I directed clients or homeowners in need to the Cuyahoga County Foreclosure Prevention program.  In addition to them working with some local non profits he said that they have the ability to make small loans to homeowners in need to help cure the foreclosure or meet the requirements to start a loan modification program with a lender.  He also said that not to many people know this but in certain short sale situations homeowners who are doing short sales and end up needing to bring some cash to close because how the bank is working may be eligible for those loans.  I found that very intersting and helpful.

I inquired about which comunity orginizations his office worked with and which he recomended.  He told me that he worked with ESOP, Neighborhood Housing Services, The Cleveland Housing Network and Community Housing Solutions (Here is a link to some of the partnerships The Foreclosure Prevention Program has made).   He told me that ESOP was leading the way with forming special relationships with lenders that give their loan modification and loan work out proposals extra preferance with lenders.  He said that the other three agencies were more specialized around offering a helping hand and counseling services which homeowners in foreclosure typically really need but often don’t realize their need.

BTW: I know ESOP has gained nationwide attention for their foreclosure advocacy. Many other local homeowner advocacy groups have modeled themselves after ESOP.  Also it is little known that ESOP is willing to help with short sales.  I have a feeling that working with ESOP could make short sale quicker but I have never tried working in partnership with ESOP to do a short sale with a homeowner.  If any homeowner would like to do a short sale with me and partnership with ESOP call me up at 888-4-STOP-IT.

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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.

Dennis Murray (D-Sandusky) introduced House Bill (HB) 323 to Ohio’s House of Representatives. This bill on the draconian side for banks. It would require a brisk time line for banks to move a home from foreclosure court filing to bringing it to sheriff sale… if they don’t follow the time line apparently the lender will have the mortgage liens removed from the property and lose any rights to the proceeds of the sale of the property.

Not only are there time lines to follow but the lender will also have to file several extra documents including a form that gives the details of who exactly owns the note and an affidavit showing that the bank has inspected the property, has attempted to contact the owner by telephone and has sent letters to the borrower.

Get more details here.

Is this a good policy?  My conservative tradition argues against all the extra regulation.  Some would even argue if being so quick to take away a banks ownership interest is even constitutional.  I for one am not a constitutional expert.  However to the communities that are being ravaged by bank foreclosures, this could be a tool to help save them from banks, who will start a foreclosure but just walk away from the foreclosure when they realize the property is in bad condition. Banks that do this can put a property in limbo for years. It’s not free to be sold and renovated.  Its might be in to bad of condition to be lived in.  So it just sits there blighting a neighborhood.

From a short sale and loan work out perspective I think there is a possibility that this could give homeowners leverage against their lenders.  I have noted in previous blog posts that servicers often do not have a financial incentive to work with borrowers even though it makes financial sense to all the other players (i.e. borrower, note holder, local communities) for a work out to be made.  This law could significantly increase the complexity, risk and expense of foreclosing in Ohio making loan workouts much more desirable alternative.

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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.

The Wall Street Journal had on article here about Wells Fargo’s loan modification strategy for it’s portfolio of negative amortization “pick a pay” loans which allowed owners to make interest only payments or even less while the balance would grow and while equity has shrunk… especially in this market.  Wells Fargo has nearly $107 billion worth of these loans.

Most homes with these loans are way underwater… and many of the home owners still can’t afford payments amortized for this century. What is Wells Fargo doing to solve their problem?  They are making thousands of interest only loans that will defer borrowers balances for as long as 10 years.

This strategy reminds me a bit of what Fannie Mae is doing right now with their lease for deed program and it also reminds me of a time years ago when a certain very large lender rented out its portfolio of real estate owned (REO) homes and managed to actually never lose any money even in a down market.

Is it smart to post pone the inevitable loss?  It’s hard to say.  What the market will do in the next 10 years is anybody’s guess but if Wells Fargo can keep people in their homes long enough the market will eventually recover barring massive catastrophe.  As much as I dislike Wells Fargo I think finally they have a good strategy… although I am slightly cynical about if they will actually follow through with their plan… or if there will be some interesting catches.

If it doesn’t work out and the market goes down or doesn’t recover sufficiently you have my number… guys like me will be there to do more short sales and create more win win situations… mitigating loss for lenders and freeing borrowers from massive debt and credit issues.

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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.

This article is the second article I have seen today about Ohio Attorney General Richard Cordray suing unscrupolous lenders.  According to this source, Ohio leads the nation in suing servicers and holding them to task about the practices they have used to prey on people and ultimately effect entire communities and the state and even federal system.   I applaud Mr Cordray for what he is doing and I only hope he does not stop with these two servicers.  It actually surprises me that he is choosing these smaller servicers to sue first.  Many of the bigger servicers (Wells Fargo, Citi, Bank of America, Countrywide, now defunct Argent, and many more, Fairbanks/ SPS) were the worst both in originating fraudulent/ predatory loans and unfair collection processes that hurt both the owners of the loans and the borrowers.

I applaud Mr. Cordray both in his advocacy for people in foreclosure  and in his willingness to do something that might not please some of the good old boy elite bankers that run this country.  Ultimately I believe his leadership will create a very strong motivation for lenders to cooperate in work out plans like short sales and loan modifications that benefit homeowners.