While working as Business Development Manager with a law firm in Washington State offering legitimate loan modifications and Short Sale Negotiatons I have learned a few things about the reality of the programs and would like to share with other Rainmakers~

First of all the current default solutions arena reminds me of Facebook- constant changes only to let its users find out AFTER the harm is done.  

The Home Affordable Modification Program (HAMP) has been subject to much criticism. I used to feel that it was the role of the homeowner or in our case the firm to learn all about HAMP, HARP, HAFA, HUD PFS, HAUP, HOPE, EALP, FHA Short-Refi...

Well the firm has close to 100 years of experience in the bankruptcy, mortgage servicing, mortgage banking, processing, default solutions, negotiations and Real Estate experience within their team. The knowledge is there but unfortunately the playing field is not level. 

At times we can only shake our heads and TRY to explain to the agents and homeowners of the depth of the mess which goes a little like this-

Loan servicers give on average three times more attention to delinquent borrower in their portfolio than they do on loans where they have no credit exposure, i.e.  Government Service Entities (GSE's) Fannie Mae, Freddie Mac, FHA etc.) 

WHY?

The traditional compensation model for servicers is based on a flat percentage of a loans outstanding in the portfolio. On conventional loans, servicers are generally paid between 0.25 and 0.375% of total unpaid loan principle in their portfolio. FHA can be as high as .50 basis points.

Every incremental dollar spent counseling borrowers and mitigating the losses of the end investor (not their own losses) is cutting into the servicers margin. While it's true that there are economic incentives in the MHA program intended to cover the added expense of fulfilling HAMP requirements, the chips don't stack up from a business model perspective, otherwise you would see servicers treating HAMP participation as a profit center and doing more - not less - loss mitigation. Instead loss mitigation activities are performed only to the point of meeting their minimum contractual obligation to the investor and at the least incremental expense.

That's not all though. Loan servicers are not the only party involved. From: Principal Reduction Debate: Focused Attention Needed

Ultimately the reason loan principal reduction doesn't work is what economists call asymmetric information: only the borrower has all the information needed to determine whether if they are capable of (and willing) repaying their mortgage debt. It must not be ignored that borrowers often control the variables that lenders use to accurately identify candidates with the ability and desire to repay their loan. 

Plain and Simple: It's a two-way street. The success of loan modification programs depends on high levels of foresight among serviceers as well as honest behavior by the borrowers who need assistance and those who do not need assistance.

That being said..with the U.S. budget deficit a major topic of discussion on Capitol Hill, it is not surprising to see HAMP on the Chopping Block.

The following commentary was written by Tim Massad, Acting Assistant Secretary of the Treasury for Financial Stability, in defense of HAMP.

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By Tim Massad

The U.S. House of Representatives is considering legislation that would terminate the Home Affordable Modification Program (HAMP) and deny critical assistance to struggling homeowners. During the debate over this issue, a number of pieces of misinformation have made their way through the halls of Congress and onto the airwaves.

We want to set the record straight on a few key points and share five things that you may not know about HAMP.

1. Currently, about 25,000-30,000 additional homeowners receive a permanent HAMP modification every month. HAMP is continuing to provide critical assistance to struggling Americans who are trying to keep their homes. To date, more than 600,000 homeowners have received a permanent HAMP mortgage modification, and tens of thousands of additional Americans are joining their ranks each month. These homeowners benefit from a median reduction in their mortgage payments of 37 percent – or $500 every month.

2. HAMP provides assistance only to those homeowners who meet prudent eligibility criteria. HAMP wasn’t designed to prevent every foreclosure. The program does not pay for mortgage modifications for investment properties, vacant homes or jumbo loans. HAMP is not designed to help those who can afford to make reasonable payments on their existing mortgage, and it is not designed for those who are unlikely to sustain a modified mortgage even with government help.

3. Money only goes out the door if a homeowner demonstrates that they can make their modified mortgage payments. HAMP uses a “pay-for-success” model to protect the interests of taxpayers. Money is only spent after a homeowner completes a trial period and demonstrates that they can make their modified mortgage payments on time. As a result, terminating the program would simply deny assistance to homeowners who have successfully shown that they are determined to keep their homes and can meet their obligations.

4. HAMP modifications are outperforming industry norms. Data has shown that HAMP modifications are among the most sustainable in the mortgage market. The Office of the Comptroller of the Currency reports that, for the financial institutions that they regulate, the re-default rate for HAMP permanent modifications at six months was about half that of other modifications. Nearly 85 percent of homeowners who received a permanent HAMP modification remain in their modification one year later.

5. HAMP has created needed protections for homeowners seeking assistance from their mortgage company. HAMP established new safeguards for struggling homeowners. To ensure that homeowners have every opportunity to keep their homes, HAMP requires participating mortgage servicers to evaluate homeowners for a mortgage modification before referring them to a foreclosure sale. HAMP requires servicers to adhere to clear timelines when evaluating homeowners for HAMP modifications and established a process for homeowners to dispute their servicer’s decision when they believe that they have been unfairly denied a modification.

Before HAMP, there was little meaningful assistance available to struggling homeowners in the midst of the worst housing crisis in a generation. The program continues to help tens of thousands of additional homeowners every month, and it has set important standards for how the mortgage industry assists homeowners industry-wide.  It is structured so that the amount of money spent will be proportionate to the number of people helped; any funds not used will pay down the national debt.

There is no easy way to repair the deep damage caused by the housing crisis. It will take time and sustained effort. But what’s clear is that terminating HAMP and denying critical assistance to struggling homeowners simply isn’t the answer.

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The funny thing is...

Even if the HAMP Termination Act of 2011" (H.R. 839) is passed in the Republican controlled House of Representatives, it must still pass the Democratically dominated Senate. And then it would still need President Obama's signature. The White House has already indicated it would veto the bill if it somehow gained Senate approval, which is unlikely.

WHITE HOUSE PLANS TO WIND DOWN FANNIE AND FREDDIE

Congress will consider three suggestions.

A fundamental reform for the housing market. For two-and-a-half years, economists and housing industry analysts have wondered what would happen with Fannie Mae and Freddie Mac. On February 11, they got an answer: the Obama administration announced plans to shut down both of the troubled mortgage giants by 2018 or sooner.1

As he met with the press, Treasury Secretary Timothy Geithner cited the "very broad consensus" that the government should play "a much smaller role" in the housing market. Capitol Hill Republicans would agree, pointing to the $154 billion price tag for the 2008 bailout of both firms. (That is the Treasury's estimate.)2,3

The choices on the table. The Obama administration's white paper offers three proposals to Congress, with the hope of legislation emerging by 2014.1,2,4,5

·         Option 1. The government walks away from the mortgage market except for the FHA, VHA and a few other programs designed to help low-income and moderate-income homebuyers.

·         Option 2. The government offers a kind of downside protection. In addition to backing home loans via the entities mentioned in Option 1, it would also provide "reinsurance" to guarantee private mortgages in the event of a real estate downturn and/or recession. But the guarantee would only apply in a crisis.

·         Option 3. A variation of Option 2 that would provide a "reinsurance" backstop for a range of mortgage investments already guaranteed by private insurers. The "reinsurance" would take effect if a private insurer couldn't pay (i.e., if its shareholders were wiped out).

The timeline. The Obama administration may be long gone by the time all this plays out, but here is the three-stage conception of how it will wind down both agencies.2,6

·         Stage 1. Between now and 2014, the government gradually reduces its subsidy for the housing market. The conforming loan limit for Fannie and Freddie - now $729,000 in some metro areas - is scheduled to shrink to $625,000 in October. In addition, Fannie and Freddie would start to require 10% down for all loans and fees would rise for the government guarantee.

·         Stage 2. Starting around 2013-2014, the federal government will "accelerate the pace of transition" (in Geithner's words) to a mortgage market based in private capital with government intervention occurring only as needed.

·         Stage 3. This stage depends on Congress. The idea is that by the middle of this decade, legislation emerges spelling out Option 1, Option 2 or Option 3 above in detail and a new law is passed.

The big picture.

By the end of this decade, it could be considerably harder to buy a home. If the government gets out of the mortgage market (or at least drastically reduces its role), a major influx of private capital needs to flow into the housing system to replace the federal subsidy, with the following possible effects:

·         A 30-year fixed rate mortgage could become significantly more expensive. How much more expensive? In early February, Credit Suisse projected that interest rates on a basic 30-year FRM could rise by up to 2% if Fannie and Freddie disappeared.7

·         If the Option 1 scenario occurs, you could see considerably fewer FRMs and more ARMs. In fact, you would likely see fewer fixed-rate mortgages if Options 2 or 3 were chosen by Congress.

·         Big banks could grab a bigger chunk of the mortgage market.

·         Higher mortgage rates could negatively impact home sales - and in turn, home prices.

We'll have to wait and see how this all plays out, all while hoping it won't lead to a decline in home ownership.

Just sending a quick reminder of our upcoming credit workshop this Tuesday February 22^nd @ 6:30!

Salmon Creek Executive Suites

2101 NE 129^th St., Ste 219

Vancouver, WA 98686

You’re going to want to bring with you something to take notes with and any questions that you may have.

I just met with a savvy investor today looking at finally getting off the fence and buying a couple investment properties. He came to me with the expectations of putting 25% down and needing 6 months reserves for his other 4 properties he currently has in his portfolio... 

I asked if he knew about Fannie Mae's Homepath Program- 

He was not aware of this so I explained the benefits- no appraisal, 90% financing and NO MORTGAGE INSURANCE NEEDED.... He instantly assumed this must be good to be true and wondered exactly what kind of a dump he needed to buy-  he was looking for newer so we looked at this one for $179,000. 

Only $17,900 down leaving money for qualifying reserves.... He is blown away and can't wait to contiune looking on line for these great deals. 

I specialize in Homepath financing and it does have some quarks but by far THE best deal on the market when it comes to lending. If you or someone you know are interested in Homepath financing please give me a call today. 

So I posted an article from NAR on Facebook and someone commented what if values drop another 10% and here is my answer.

Ok- Let’s run the numbers at a 10% drop the first year of ownership but a conservative 2% year after year 2-5 and say we have a $200,000 purchase with 10% down at 4.5% on a Lender Paid Mortgage Insurance (LPMI) program with a $180,000 loan today we have a payment of $912 and $235 for T&I vs. rent at $1250 and rental insurance at $25.00.

So $1275 to rent vs. $1147.00 to own assuming a 28% tax bracket is $241 per month benefit with another $237.00 going toward principal reduction. So in a five year period with a conservative 2% rental appreciation you end up paying $79,561.00 in rent and $68,822 in mortgage but $15,916 goes toward principal and $13,974 goes toward tax benefit making a net cost to own at $38,933 with a net savings of $40,628.

Now with the 10% drop the first year we are still at $196,748 but our loan balance is $164,084 so we have $32,664 in equity after five years! BOOM- its time to buy before rates go up! 

Wells Fargo makes some drastic changes prior to what some feel will be another law passed by the government to increase the speed of a short sale.

I had a discussion today with the operations manager at the Law office of Robert C. Russell and she has not yet heard of these new changes that have been announced but she has no doubt that it will be yet another hurdle to step over.

Here is what we found-

Time allowed for buyer to close on short sales-

• If foreclosure date is within 0-11 days
  • All pending short sales within 11 days of foreclosure date will be rejected & closed immediately and returned back to negotiator or Realtor. For those homeowners wanting to keep their house in Washington State and find themselves in this situation we strongly encourage you to reach out to a default specialist that has the solutions to help. 

• Foreclosure Date set 11 days out or more-  
  • Buyer will be granted 30 days to close- no extensions or exceptions  
  • Must have approval letter from buyers lenders or proof of funds
  • Written approval from all Jr. liens before an acceptance letter is given
    

If no foreclosure date is set buyer has 60 days to close from Wells Fargo. If at anytime foreclosure date is set they move to the 30 day mark.

We feel this is the beginning of the clearing house that will be coming right around the corner and working with a successful lender with fast tuen times will be the key to marketing these properties. Our current turn times at Loan Network is 48 hours in underwriting and pre-approval letters are same day.

The Law Offices of Robert C. Russell will be persuing this new program as it rolls out. We have been having great success with modifications and short sales this week.

I just have them call my CPA for free advice...

One of the big questions we always get is "what is the time line for a short sale?" and the very first thing I ask is who is the servicer and how delinquent is the seller. This usually gives me about a 75% chance of timing the transaction.

One important thing that imroves the success of a short sale is the submission package being complete with a flawless review. The team at NW Short Sale Network have used our background in mortgage origination and processing to implement a check list and intent of a flawless execution on every file prior to being submitted.

Even with a flawless submission we ask is there progress among servicers in the short sale world? REO Insider recently reported on how Deutsche Bank ranked top mortgage servicers based on short sale timelines. Here's how the rankings shook out based on mortgage type and average time to complete short sales. We know there's progress in the industry (agent education, new processes, HAFA, etc.), and we'd love to know what you think about this:

Prime:
1. GMAC - 6 months
2. Citigroup's servicing arm CitiMortgage - about 7.5 months
3. Wells Fargo - roughly 8 months

(Countrywide - now owned by Bank of America - had the slowest short sale timeline at an average of more than 13 months)

Subprime:
1. Wells Fargo - more than 15 months
2. HomEq Servicing - 16 months
3. Morgan Stanley's servicing arm Saxon Mortgage Services - at a little more than 17 months

(Equicredit and Ocwen came in last with an average of more than 29 months on their short sale timeline)

Option-ARM:
1. JPMorgan Chase's EMC Mortgage - just over 8 months
2. Aurora Loan Services - 10 months
3. GMAC - just more than 10 months

(Again, Countrywide brought up the rear with a short sale timeline at almost 14 months)

Alt-A:
1. First Horizon - just over 9 months
2. Both Wells Fargo and Aurora - roughly 11 months

(Here's Countrywide again at the bottom at more than 13 months for their short sale timeline)

So now you know why its so important to not just educate the seller but finding the right buyer and keeping them during the transaction. Our success rate is MUCH greater then these reported and we continue to improve our process and increase turn time for successful shortsales.

Bill  

Recently, both Fannie Mae and Freddie Mac (the Government Sponsored Entities or GSE's) announced their HAFA Guidelines, with a mandatory implementation date of August 1, 2010. Fannie Mae guideliens can be found here and Freddie Mac guidelines can be found here.  These critical and much awaited announcements propel HAFA toward becoming the #1 Short Sale program in the Nation... and make it a ‘first choice' program for every distressed homeowner who cannot afford to retain ownership of their home due to financial hardship.

Let NW Short Sale Network screen the cleint for the HAFA options as the programs rollout.

While the GSE version of HAFA is substantially similar to the non-GSE version of HAFA, the GSE's in their role as Investors have provided critical, helpful, and unique program implementation details that apply just to their HAFA transactions. Some of the unique aspects of the GSE HAFA programs include:

• Freddie Mac HAFA Eligibility requirements (in addition to standard HAMP program eligibility requirements) that Borrower be more than 60 days delinquent and Borrower's cash reserves must be less than the greater of $5,000 or three times the currently monthly payment.
   
• Clear definition by Fannie Mae of allowable transaction costs for a HAFA Short Sale including:
  • "Real estate sales commissions customary for the market. The Servicer may not require that the commission be reduced to less than 6 percent of the sale price of the property"
  • "Homeowners or condominium association fees that are past due, if applicable"
  • "Wood destroying pest inspections and treatment, when required by local law or custom".
     
• Higher Services Incentive of $2,200 for successful GSE HAFA Short sales (and $1,500 for successful GSE HAFA DIL's, similar to non-GSE HAFA).
   
• Per Fannie Mae, mandatory consideration of the HAFA DIL option and the Fannie Mae Deed-to-Lease program (for interested borrowers), if the Short Sale option fails (i.e., the property doesn't sell within the marketing period agreed upon in the SSA or if the SSA is terminated (consistent with program guidelines) prior to its expiration.
   
• Per Fannie Mae, requirement that without Fannie Mae's prior written permission, a Servicer must not consider or solicit a borrower for a Fannie Mae HAFA short sale or DIL with respect to a mortgage loan if:
  • A foreclosure sale is scheduled to be held within 60 days of the Borrower's request for a HAFA transaction, or
  • A foreclosure proceeding could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the Borrower's request for a HAFA transaction, or
  • A foreclosure sale is scheduled to be held or a foreclosure proceeding could be initiated and reasonable be expected to result in a foreclosure sale within 60 days of a determination that a Borrower is ineligible for HAMP, or
  • The loan is secured by a property in Washington on which foreclosure proceedings are pending, judgment has been obtained, or a hearing on summary judgment or trial is scheduled within 60 days.

The Law office of Robert C. Russell P.C. manages the NW Short Sale Network at www.nwssn.com and have been successfully closing loan mods as well as short sales for home owners as well as Realtors. Call or email me today for more information.