New Springfield Mo Short Sale Program Requirements to begin April 5th
After working Springfield Mo short sales for the past few years, the Federal Reserve is stepping in to assist banking institutions that participate in the program. This will be a big change in the way some banks handle short sales. Maureen Megowan, Remax Palos Verdes Realty wrote a great post about the new changes.
VIA: Maureen Megowan:
For those institutions that have signed up to participate in the Federal Reserve's new program to stimulate short sales of delinquent loans, called the Home Affordable Foreclosure Alternatives Program (HAFA).the new program requirements take effect on April 5th. This program was made available for first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac .
Those financial institutions that wanted to participate in the program needed to execute an agreement with Fannie Mae in its capacity as financial agent for the United States (as designated by Treasury) to participate in HAMP ( the Home Affordable Modification Program, a previous program to help borrowers modify their delinquent loans) on or before December 31, 2009. This program is effective through December 31, 2012.
Only those institutions that have applied to participate in this program are held to the program requirements, and they do not apply to loans owned by Fannie Mae or Freddie Mac, which account for over 50% of all loans outstanding. Fannie Mae and Freddie Mac are following several of the guidelines of this program such as the amount allowed to be paid to junior mortgage holders from the sales proceeds.
The HAFA program simplifies and streamlines the use of short sales by incorporating the following unique features:
- Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible. Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options .
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- 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 that borrowers be fully released from future liability for the debt.
- Uses standard processes, documents and time frames.
- Provides financial incentives to borrowers, servicers and investors. Among the financial incentives are the following:
1) The servicer will be paid $1,000 to cover administrative and processing costs
2) The investor will be paid a maximum of $1,000 for allowing a total of up to $3,000 in short-sale proceeds to be distributed to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each three dollars an investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of reimbursement. To receive an incentive, subordinate lien holders must release their liens and waive all future claims against the borrower. Each lien holder, in order of priority, may be paid three percent (3%) of the unpaid principal balance of their loan, until the $3,000 aggregate cap is reached. Payments will be made at closing from the gross sale proceeds and must be reflected on the HUD-1 Settlement Statement.
3) Following the successful closing of a short sale or DIL, the borrower shall be entitled to an incentive payment of $1,500 to assist with relocation expenses.
A loan meets the basic eligibility criteria if all of the following conditions are met:
The property is the borrower's principal residence;
The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
The mortgage is delinquent or default is reasonably foreseeable;
The current unpaid principal balance is equal to or less than $729,7501; and
The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.
Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:
Does not qualify for a Trial Period Plan;
Does not successfully complete a Trial Period Plan;
Is delinquent on a HAMP modification by missing at least two consecutive payments; or
Requests a short sale
The program offers borrowers the opportunity to get their short sale parameters preapproved by the lender through a Short Sale Agreement ( " SSA" ) . This SSA must include the following:
- A fixed termination date not less than 120 calendar days from the effective date of the SSA ("Effective Date").
- A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
- Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
- The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
- The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
- A statement by the borrower authorizing the servicer to communicate the borrower´s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
- Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
- Notice that the sale must represent an arm´s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm´s length transaction that must be included in the sales contract.
- An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
- An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
- Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
- Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower´s credit score and a recommendation that the borrower seek professional advice regarding these matters.
- The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower´s gross monthly income.
- An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure
Upon negotiating a purchase contract, the borrower would submit a Request for Approval of Short Sale ("RASS") to the lender. The lender must approve the RASS within 10 business days. The lender must approve a RASS if the net sale proceeds available for payment to the lender equal or exceed the minimum net determined by the lender prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the lender may not require, as a condition of approving a short sale, a reduction in the real estate commission below the commission stated in the SSA. The servicer may require that the sale closing take place within a reasonable period following acceptance of the RASS, but in no event may the servicer require that a transaction close in less than 45 calendar days from the date of the sales contract without the consent of the borrower.
Borrowers who have pursued a short sale without applying for a loan modification under HAMP or requested preapproval through an SSA may still request approval from their participating lender through an Alternative Request for Approval of Short Sale (Alternative RASS). The servicer must verify the borrower's financial information through documentation and obtain a signed Hardship Affidavit from the borrower prior to approving the short sale. If the borrower does not wish to be considered for a modification, the servicer may consider the Alternative RASS without first having to enter into an SSA with the borrower. If the servicer approves the short sale, then the loan will qualify for the HAFA program.
Hopefully, this program will make it easier to obtain approvals of some short sales, which previously have taken up to sic months or more. For more information , see Foreclosures & Short Sales. I am a certified Distressed Property Expert and can help lead you through the complexities of these transactions.
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