We’ve been getting a lot of emails asking about the streamlined short sale guidelines put out by the Treasury Department in late November 2009. Thus, we thought we’d talk about it a bit today.
The new guidelines are part of the Home Affordable Foreclosure Alternatives Program also know as HAFA… government types love long names so they can use acronyms.
The program is pretty complex with 43 pages of guidelines/forms and does not apply to loans backed by Fannie Mae or Freddie Mac. We are told they will be putting forth their own version of the guidelines. We find this strange since we were told by HUD last October the guidelines were for Fannie and Freddie backed loans.
The basic elements of the streamlined process includes:
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. We wonder how they plan on distributing the info from one department to another effectively. We will probably have our clients re-submit documents only because we know it will be faster and more likely to work.
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). This is a huge step forward. In the past, agents have been guessing what the bank’s appraiser will provide as market value 4-6 months from the time the home is put on the market.
Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent). We appreciate this a lot. It's tough working hard for 4-6 months and have some banker tell you they are reducing your commission by 30%-50%.
Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). This is huge for home sellers. Many do not have the cash to contribute and the threat of signing a promissory note is very scary… especially if your deficiency is in the 10's of thousands of dollars or more.
Uses standard processes, documents, and timeframes/deadlines. Right now every bank has their own forms, rules, timelines and such. Standardizing the process will be a great benefit. Plus, if there are two mortgage companies, the forms, rules and documents will all be the same. What a concept!
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). This too is good. Financial incentives are what will help the lenders/investors be more proactive in responding favorably to short sales.
The changes are scheduled to go into effect on April 5, 2010, yet some loan servicing companies will likely move more quickly than that. We hear Bank of America is testing an expedited short sale process as we speak.
We hope this has been of help. Please visit our dedicated short sale site for more information about short sales in the Greater Phoenix market… www.Short-Sale-Phoenix.com.
Gene Urban
The Urban Team at Realty Executives
602-234-5777
