Freddie Mac and Fannie Mae’s Home Affordable Modification program is Good News for Short Sales. The Home Affordable Modification Program is a key part of the Making Home Affordable
Program that was announced on March 4, 2009 under Obama’s Homeowner Affordability and Stability Plan.
Short sales are complex transactions that involve delicate coordination and cooperation from several, often opposing parties– servicers, appraisers, borrowers, lenders, Real Estate Brokers, sellers, purchasers, title agencies, and some times even mortgage insurance companies
and junior lien holders. A short sale usually gives a better outcome for everyone involved, even investors and communities, but because of the complexity and time involved, some servicers just pursue foreclosure instead, even if a short sale would have provided a much better outcome.
The Making Home Affordable (MHA) Program has provided additional details on its plan to help stabilize the US housing market and prevent foreclosures, and it is good news for short sales. The foreclosure alternatives for borrowers eligible for MHA include:
– A Short Sales/Deeds-In-Lieu Program to Facilitate Foreclosure Alternatives
– Incentives for servicers to pursue alternatives to foreclosures
– Borrower incentives to cover relocation expenses to homes that are affordable
– Streamlined process combining short sales and deed-in-lieu transactions
The Foreclosure Alternatives program will provide incentives for servicers and borrowers to pursue short sales in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. It provides a standard process flow, minimum performance timeframes, and standard documentation, and offers financial incentives to servicers and borrowers. Fourteen servicers, including the five largest, have now signed contracts and begun modifications and refinancings under MHA, and including both these servicers and Fannie Mae
or Freddie Mac, more than 75 percent of all loans in the country are now covered by the MHA program.
Further details on short sales and the MHA
When a borrower meets the eligibility requirements for a Home Affordable Modification (HAMP) but does not qualify for a modification or cannot maintain payments during the trial period or modification, the MHA) Program recommends a short sale to avoid the foreclosure process. This helps the borrower sell a property for less than the amount owed, helps the lender avoid the costs of foreclosure, and helps you get properties at bargain basement prices. I’m going to deviate from the usual format today by posting all the details straight from a US Treasury Department News Release:
How The Home Affordable Short Sale/DIL Program Works:
– Borrower Eligibility. Borrowers will be eligible for the Foreclosure Alternative Program if they meet the minimum eligibility criteria
for a Home Affordable Modification but did not qualify for a modification or were unable to sustain payments under a trial period plan or a modification. Prior to proceeding to foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate. Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor’s recovery through foreclosure Incentive Payments.
– Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.
– Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.
– Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.
– Standardized Documentation: The program will publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter
. These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear timeframes for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.
– Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.
– Minimum and Maximum Duration: Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions
. The property must be listed with a licensed realtor experienced in selling properties in the neighborhood. Marketing of the property may run concurrently with the foreclosure process, however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property. There will be a maximum marketing period of 1 year for the property, provided any longer period not otherwise delay foreclosure sale, to ensure diligence by servicers and borrowers in moving as quickly as possible to complete the short sale and deed-in-lieu process.
– Selling Commissions and Fees: Reasonable and customary real estate commissions and selling costs that may be deducted from the sales price will be specified in the Short Sale Agreement. The Servicer will agree not to negotiate a lower sales commission after an offer has been received.
– Fees and Charges: Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.
– Property Eligibility: Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared.
– Program Expiration: Eligible borrowers will be accepted until December 31, 2012. Program payments will be made upon successful completion of a short sale or DIL.
– Deed-in-Lieu: At the servicer’s option, the Short Sale Agreement may include a condition that the borrower agrees to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time specified in the Agreement or any extension thereof. In this case the borrower would have 30 days to vacate the property and would be entitled to $1,500 to assist with relocation expenses, in addition to any other funds the servicer may provide to the borrower.