Obama Supplemental Directive for Short Sale and Deed in Lieu

Quote: “This Supplemental Directive provides guidance to servicers for adoption and implementation of the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of HAMP and provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan under HAMP.” November 30, 2009 the Obama White House released their “Introduction of Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure. Unlike much of Congress, I have read this document and want to highlight some features for you that you will want to be aware of. First, you can read the document for yourself by following this link, https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf which was provided by Tere Rice, a member of REOPro. These guidelines are a part of HAMP, the governments Home Affordable Modification Program and for servicers who participate in HAMP this directive does “require participating servicers to consider borrowers for other foreclosure prevention options, including Short Sale…” In essence, we now have a White House Directive to banks and servicers to use Short Sales as a tool to prevent foreclosure. You would think this was a no brainer however, now with this directive comes objectives and benchmarks. One of these benchmarks / objectives / procedures is, “The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage” In other words, no deficiency judgments on first mortgages. The directive goes further and says, “With either the HAFA short sale or DIL (Deed-in-Lieu), the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.” A second process change is the streamlining of the process. The directive allows utilization of all the borrowers information collected originally for HAMP consideration in conjunction with the Short Sale. It allows the borrower to receive PRE-APPROVED short sale terms prior to listing the property. It 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 agreement. Requires the borrower be fully released from any future liability for the debt. Provides incentives to borrowers, servicers and investors to cooperate as well as uses standard forms and documents. Now, we do have some requirements here and they are….. 1. Must be principal residence 2. The mortgage loan is a first lien mortgage orginiated on or before 1/1/09. 3. The mortgage is delinquent or default is reasonably foresseable. 4. Current unpaid principal balance is equal to or less than $729,750.00 and the borrowers total monthly payment exceeds 31 % of the borrowers gross income. 5. Lastly, the borrower must have been declined for HAMP or HAFA before Short Sale or DIL will be considered. Some other interesting things I read was the requirement that servicers notify borrowers that a Short Sale is an option. The servicer will have to independently assess the value of the property at the servicers expense. The home must have clear and marketable title. All decisions must be communicated to the homeowner in writing. It must explain why a short sale can’t be offered and give the homeowner the option to call the bank and discuss why. The servicer is required to provide the Minimum Net Proceeds hence, the Pre-Approval. The directive does have a lot of time lines requirements….really too many to log here in this blog so, it’s impearative you read this document before you do your next short sale. Some requirements extend all the way to the agent yourself so, you better be aware of how this is going down otherwise, you may find yourself on the wrong side of the directive. The best part is, “APPROVAL OR DISAPPROVAL OF SALE. Within 10 business days of receipt of the RASS and all required attachments, ther servicer must indicate it’s approval or disapproval of the proposed sale by signing the appropriate section of the RASS and mailing it to the borrower.” If you are wondering what a RASS is, then you better read the directive.

Great Information Jesse!
Your attention to our industry shows why you are a leader within it.
Of course the loan servicer should be falling right in line with this program, being that it makes sense and all...
One small point caught my eye, "Mortgage payment must be 31% above borrowers gross income."
Does this look like someone who maybe lied on their mortgage app?
I'm sure they were hapless idiots incapable of reading the fine print on their loan who were using one of those terrible loan officers who trolled for the weak of mind to take advantage of.
I've been reading up on the HAMP and the incentives for loan servicers are a few thousand dollars at best.
Based upon the reduction in REO volumes being released, it looks to me like the servicers are trying to stabilize the market in the hope of minimizing the loss severity to their non-performing assets.
If that is true and they succeed in stabilizing the market, it would likely benefit them more to foreclose since in the markets I am working in, shortsales are priced below REO's.
Of course then the current administration would be ahh...displeased and pehaps send the seiu to their corporate offices.
Hmm, maybe a 'shotgun shortsale' isn't such a bad thing after all....

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Comments

H. E "Buddy" Brown January 28, 2010 at 7:08am

Any programs for investment properties?
Albert W. Jackson December 8, 2009 at 7:12pm

Great blog Jesse. I had just popped in to confirm a friend request and now feel especially glad I did. Not only is it great that you offered a link to the directive, but to also summarize it really helps.
Lance Herndon JD December 6, 2009 at 8:00am

I consider myself a specialist in HAMP.I am not actively doing Modifications because so many criminals got into it but if you have any questions please send them over.
Lance Herndon JD December 6, 2009 at 7:58am

This is a very good blog.

The only thing I would add is that under HAMP if the borrower does not qualify 'then' the lender is required to review the file for other non-foreclosure options. Of course short sale is the primary.

Also, HAMP only applies to Fannie, Freddie, Ginnie, and 'participating' lenders (most large banks).
Jesus (Jesse) Gonzalez December 4, 2009 at 4:03am

Rick...you so just hit a point that I absolutely hate with these HAMP and HAFA directives from the White House. They do not verify debt! All the homeowners are given is a spread sheet to write down all theirs expenses and assets and...viola....if he happens to be able to show he makes enough....it's approved.

It's this very reason whey 73-76% of these modifications don't last 6 months........it's fraud.
Rick Fine December 3, 2009 at 8:30pm

Great Information Jesse!
Your attention to our industry shows why you are a leader within it.
Of course the loan servicer should be falling right in line with this program, being that it makes sense and all...
One small point caught my eye, "Mortgage payment must be 31% above borrowers gross income."
Does this look like someone who maybe lied on their mortgage app?
I'm sure they were hapless idiots incapable of reading the fine print on their loan who were using one of those terrible loan officers who trolled for the weak of mind to take advantage of.
I've been reading up on the HAMP and the incentives for loan servicers are a few thousand dollars at best.
Based upon the reduction in REO volumes being released, it looks to me like the servicers are trying to stabilize the market in the hope of minimizing the loss severity to their non-performing assets.
If that is true and they succeed in stabilizing the market, it would likely benefit them more to foreclose since in the markets I am working in, shortsales are priced below REO's.
Of course then the current administration would be ahh...displeased and pehaps send the seiu to their corporate offices.
Hmm, maybe a 'shotgun shortsale' isn't such a bad thing after all....
Victoria Frieberg December 3, 2009 at 4:45pm

Holy moley Jesse, thanks for this one. I have a short sale with one of the big 16 just begun a month ago. My question..these guys say they will allow a loan mod, but with tax increases, they end up still making a payment over the 31% rate..wondering
Jesus (Jesse) Gonzalez December 3, 2009 at 3:52am

Joshua...you raise a great point. These banks have to participate in HAFA for all these wonderful things to be enforced but, almost all the big ones do because they took government money and were told...do it or else. So, when doing your next short sale, ask the bank....do you participate in HAFA and is this account eligible.
Joshua Jarvis December 2, 2009 at 1:28pm

Before someone gets too excited, the bank has to PARTICIPATE in order for these rules to adhere. Luckily, it's the largest and worst banks to deal with on short sales that are participating!
Namneet Dhaliwal December 2, 2009 at 9:20am

This is very important to stabalize the market. Approved short sales will take out the buyer's, anxiety.

www.namneet.com

Brea, Fullerton, La Habra, Orange, Placentia, Yorba Linda, CA, Real Estate Agent, Broker

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