Michael Kara, Central Florida Short Sale Expert

President Obama’s Home Affordable Refinance Program - HARP

The Federal Housing Finance Agency announced big changes to its Home Affordable Refinance Program on October 24th, 2011.

If you’re under water on your mortgage, you may be eligible to refinance your current mortgage with a new low interest mortgage without paying down your principal and without having to pay mortgage insurance.

The complete program guidelines will not be fully released until November 15, 2011 and lenders will start working with this new program around December 1st, 2011. Here are the details of the new Home Affordable Refinance Program (HARP).

HARP was started in April of 2009, and has gone by many names including the Making Home Affordable plan, the Obama Refi plan, and Relief Refinance. The official government name is HARP, which stands for Home Affordable Refinance Program.

In order to be eligible for the HARP program, your loan must be backed by Fannie Mae of Freddie Mac and your current mortgage must have a securitization date prior to June 1, 2009.

Contact us today to prequalify for the HARP program!

HARP FAQ – Frequently Asked Questions about the Home Affordable Refinance Program:

What are the minimum requirements to be HARP-eligible?
Primarily, you must have made your mortgage payment on time for the last 6 months, and at least 11 of the last 12 months. Next, your mortgage must be backed by Freddie Mac or Fannie Mae, and it must have been sold to them PRIOR to June 1, 2009. Finally, you must be new to the HARP program. Only one HARP refinance per mortgage is allowed, so if you own multiple properties, choose wisely.

Is there a 125% loan-to-value restriction for HARP?
No. All homes, regardless of equity, are eligible for the HARP program. There is no LTV, or loan-to-value restriction.

How can I know if Fannie Mae or Freddie Mac backs my mortgage?
Both Fannie and Freddie have websites that can look up your loan to check this. Check Fannie Mae’s site first, because they own more loans. If your loan isn’t listed there, check Freddie Mac’s site. Your loan MUST be on one of these two sites in order for the home to qualify for HARP. If it’s not, you’re automatically disqualified for HARP, but your best option is a short sale, which has many similar benefits.

If my mortgage is owned by Fannie/Freddie, do I instantly qualify for HARP?
No, there are more criteria, but your loan being backed by Fannie/Freddie is a pre-qualifying start.

My mortgage is owned by Fannie/Freddie. What now?
Write down who owns your loan so you don’t forget, and give that information to whomever is handling your HARP refi, so that the information can be passed to your lender.

Am I eligible for HARP if I’m behind on my mortgage?
No. The Home Affordable Refinance Program is designed specifically for homeowners who are current on their mortgages. It’s not designed to stop or postpone foreclosures. If you’ve missed payments, your best option is a short sale, which has many benefits as well.

Will HARP save me from foreclosure?
Unfortunately, no. HARP is specifically designed for homeowners who are current on their mortgages to refinance at current lower mortgage rates. It’s not designed to stop or postpone foreclosures. If you’ve missed payments, your best option is a short sale, which has many benefits as well.

Do I have to use my current mortgage lender for my HARP refinance?
No. You can perform a HARP refinance with the mortgage lender of your choice, but you should be careful to choose someone who is very knowledgeable about the HARP program.

Can I do a cash-out refinance through HARP?
No. Only rate-and-term refinances are allowed through HARP.

Can I refinance an investment or rental income property through HARP?
Yes, as long as all of the eligibility standards are met. Even if the property was once your primary residence, you can refinance the investment property through HARP. If you’re an “accidental landlord” you can do a HARP refinance as well.

Can I refinance a vacation home or secondary home via HARP?
Yes, as long as all of the eligibility standards are met. Even if the property was once your primary residence, you can refinance your vacation home through HARP.

Can I refinance a condominium via HARP?
Yes, as long as all of the eligibility standards are met.

What if I am unemployed? Can I qualify for HARP without income?
Income verification is required for the HARP refinance program, meaning that you will need income to prove that you can afford the new mortgage. It will be very similar to when you submitted for qualification for the mortgage loan to purchase the property originally.

Can I roll my closing costs into my HARP refinance?
Yes, as long as the loan amount doesn’t exceed the local loan limits, your mortgage balance can be increased to closing costs and other closing expenses such as accrued daily interest and escrow reserves.

My original mortgage was a stated income loan. Will I need income verification with a HARP refinance?
Yes. All applicant income is verified with W2’s, paystubs, tax returns, and additional documents as requested by the underwriter. The income verification process is done in the same way as a traditional refinance.

Are there any credit score requirements to qualify for a HARP refinance?
There are no specific credit score requirements within the HARP program, but your credit must qualify you for the mortgage based on traditional underwriting standards.

When does the HARP program expire?
The new refinanced mortgage must close prior to January 1, 2014.

“I won’t qualify for a short sale.”

This is one of the biggest myths out there, and it’s one that I hear from people all the time. They think that they won’t qualify for a short sale because they have high income and excellent credit. The fact is, all homeowners have the right to ask for mortgage forgiveness, no matter how high their income is or how great their credit is. The “too big to fail” banks are receiving billions of taxpayer money for bailouts; this same bailout courtesy should be passed down to help the very same people who pay those taxes: YOU, the homeowner, their faithful client who has gladly paid your mortgage every month for years.

I also hear people saying that they don’t want to do a short sale because they are concerned about their credit score. But this, too, is a huge misnomer! The only time that a short sale kills your credit score is when you stop making your mortgage payment. Obviously, when you miss payments, your credit score is going to be affected. The good news is that you don’t have to miss payments to do a short sale! Short selling a property without missing any mortgage payments will only have a very small impact on your credit score. The mortgage will be recorded as “Settled. Mortgage Paid In Full” on your credit report, and it won’t make any references to a short sale. Your credit score is only impacted by approximately 15 to 30 points, and starts recovering in as little as 6 months.

I’m sharing this information with you because it’s not fair for the short sale advantages not to be spread evenly. You can benefit from a short sale whether you have high or low income, high or low credit score, own one property or own multiple properties. At the end of the day, a short sale all boils down to one thing: increasing your net worth by getting out of an upside down investment. Anybody can qualify to short sell any property if the short sale request and accompanying documents are packaged and submitted correctly.

Case in point: I had a client recently; we’ll call him Mr. Travolta. (What? I’ve already used Mr. Smith and Mr. Jones… I’m running out of traditional last names!) Mr. Travolta is a small business owner who does very well for himself. He earns over $500k annually, and has retirement funds and stocks like crazy. Mr. Travolta also owns several pieces of real estate. I walked Mr. Travolta through some basic asset protection strategies to keep his exposure to a minimum. He was concerned at first that his mortgage lender would be able to just reach in and take his money, but that’s not true at all. What can happen, however, is that the lender can use those liquid funds in negotiations as leverage in asking for a cash contribution in exchange for short sale approval. My job is to protect sellers from these lender’s asking for cash contributions, which is why we use asset protection strategies.

We got started on Mr. Travolta’s short sale and quickly got an offer for full-market-price of $75,000. Quite a loss considering that Mr. Travolta had paid $266,900 when he purchased it; that’s a 70% loss on his investment! So, did Bank of America approve such a loss to a seller who nets over $500,000 a year, perfect credit, never missed a payment, and owning other real estate investment properties?

YES. Bank of America approved the short sale for $75,000, a 70% loss, without Mr. Travolta ever missing any mortgage payments or losing assets. Mr. Travolta brought a small check to closing in return for a full release of $266,900 in outstanding mortgage debt, which means that Mr. Travolta’s net worth just jumped up by $266,900.

The bottom line is that no short sale will be rejected if handled correctly. Don’t keep throwing money at a bad investment. These properties have experienced a huge loss in value and that value most likely won’t return for ten to fifteen years. Continuing to pay for them is like trying to stop a ship from sinking with a thimble. Now is the time to dump that “investment property” and reuse the money saved for a safer investment with actual returns!

According to an article by Businessweek last week, “there has been a ‘dramatic shift’ in banks’ willingness to sell a property for less than the mortgage balance”. The Businessweek article also cites data from RealtyTrac Inc, which shows that short sales are generally a 20% discount compared to homes that are traditional sales, while bank-owned homes (after foreclosure) are a 40% discount. In short, that means that the lender is making back even less of their investment on a foreclosure, and they’ve realized that a short sale is the smarter way of doing business.

The article quotes Ron Peltier, chairman and CEO of the second largest residential brokerage in the United States, HomeServices of America Inc. Peltier says, “Banks have become much more supportive of short sales. That’s better for the lenders, who have smaller losses on short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”

These lenders don’t WANT to own your homes, folks. They are practically falling over themselves to grant a short sale. So much so, that many of these lenders are offering cash to the sellers at closing in amounts of $5k, $10k and even $30k! That doesn’t sound like a bad deal to me!

The article continues: “Banks are not only approving more short sales, they’re doing it in less time,” although it does go on to point out that the time frame for a short sale is still much longer than that of a traditional sale. This is because of how many people have to touch the file in order for a short sale to be approved: mortgage servicers, mortgage investors, homeowners, real estate agents/brokers, mortgage insurance companies, etc. But it’s still important to note that the banks are working to streamline the process.

The U.S. Government is certainly on board; they’ve worked with lenders to roll out the HAFA program to encourage sellers to short sale. This is because short sales are good for the economy at this point. When homeowners come out from under that upside-down debt, they may be more willing to spend money, which helps the economy. Additionally, as the Businessweek article points out, “Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values,” which means that short sales are actually helping the real estate market improve, in comparison to foreclosure sales.

Read the entire Businessweek article here.

When helping people complete a short sale, I'm exposed to each person's personal life to understand the hardship one may have endured to be forced to sell their home. Some people choose to short sell because it's a smart move financially, but some are forced to sell because of hard times. During the weeks of learning each person's situation, we become close to our new friends and share their emotional roller coaster ride.

One disclaimer before reading on: the problems described here are rare and happen less than 1% of the time. Don't read this and think that these circumstances are normal or common. Most of our short sales are completed in less than 90 days.

This particular seller, we'll call him Mr. Smith, contacted me after receiving one of my flyers in the mail. After explaining to Mr. Smith how we could help, it was his turn to share with me why he needed help. Mr. Smith explained that he was laid off from his job and three months later, his wife left and asked for a divorce out of the blue. He also explained that he had been trying to do a loan modification with Bank of America for the last ten months! Mr. Smith was understandably frustrated at many things at this point, but he remained in good spirits. I empathized with him, and admired the fact that he had a positive attitude about his situation, despite the negative aspects. Mr. Smith simply said: "I don't care about the house anymore. Bank of American can have the damn thing back. I don't have any money to pay my overdue HOA bill, no money to pay you, and I'm not giving Bank of America another dollar." Who could blame him?

I explained to Mr. Smith that our services are free to him and expressed that the worst thing someone can do is walk away from a property and let it go into foreclosure. I also explained that he had a legitimate hardship and the short sale would be very simple. I told him that I expected it to take about three months.... I ate those words later!

Mr. Smith completed the necessary paperwork and we got a full-market-price offer for his property shortly. Bank of America took a little longer than normal to respond, but things were moving forward smoothly. After 90 days we got short sale approval from Bank of America, but it did not release the seller of the $154,680 deficiency loss. This happens sometimes, but it's no problem; we just go back to the lender and fight for the seller's release of deficiency, as usual. We informed the buyer's agent that we had the approval letter, but we needed to get Bank of America to change the approval letter to one with the "release" verbiage. Within 12 hours, the buyer's agent called us back to tell us that the buyer was no longer interested in the property. All that work and time, and now the buyer is walking away! That's very frustrating, but it happens and we keep trying. We put the property back on the market and quickly got another offer. We submitted the new contract to Bank of America and after 90 days of processing and negotiating, Bank of America informs us that they belief that the buyer and seller are related and therefore will not agree to the short sale with that buyer.

WHAT?!? That's crazy! Bank of America has the buyer and seller's personal information, social security numbers, arm's length affidavits... it's impossible. But Bank of America would not correct their mistake. This EXACT SAME THING happens to two more buyers! Rather than continue to do the same thing and expect different results, we spent literally hours and hours on the phone with Bank of America, jumping supervisor to supervisor, trying to get answers and help. After explaining the situation in depth and submitting verification documents that this problem had occurred multiple times, we finally reached out to a supervisor at Bank of America who agreed to help us.

Quickly, we found our fifth buyer, and we all seemingly held our breath for the next 45 days. Finally, Bank of America issued us an approval letter, giving the seller a full release of all mortgage debt, including the full release for the $154,680 deficiency. Additionally, the mortgage company agreed to pay the $6,579 HOA bill at closing. WHEW!

This short sale approval was special to me because Mr. Smith was truly having hard times, even more so than most. Mr. Smith always remained positive. He had no money to his name and had a series of rain clouds following him, but kept his chin up. I wasn't about to stand by and let a "too big to fail" bank walk all over him. This short sale took me and my team 18 months to close.... EIGHTEEN MONTHS. But I knew that if we were persistent, I would get the approval eventually. I was willing to never give up and keep pushing myself, my team, and our ideas to the next level, and it finally paid off for the seller.

THAT'S what persistence and dedication is all about. Never giving up, not taking NO for an answer, and being willful enough to dig to uncover the problems.

I'm writing this blog for two reasons: First, I want to brag about just how good my team is at processing short sales. Second, I want to stress that the big law firms and real estate brokerages (the ones with all the TV commercials and billboards) are not always better.

A Winter Park family was referred to me recently by another Realtor who just recently cooperated on a purchase of one of our short sales. She enjoyed how smoothly our transaction went; so much so, that she suggested us to a family friend of hers.

The friend she referred over to us had hired a very well-known law firm here in Orlando, and had a very large and well-known real estate brokerage handling the selling of the property. Unfortunately, the family paid the law firm an up-front retainer fee of around $3000 and then a few more payments over the following year.

They soon became just another number at the law firm and couldn't get any answers out of them about why the short sale wasn't making any progress. As it turns out, the value of the property was done incorrectly and neither the law firm nor the real estate broker communicated properly to work together to correct the value issue.

As a result, the family was taken on a 14 month emotional roller coaster which ended with their short sale being denied.

When I first met with the family, they had a lot of anger and frustration towards everyone involved with their short sale. They believed that nobody could help them at this point, and that people who said that they could only wanted their money.

After meeting with them for about an hour, I convinced them to drop the law firm and allow my team to process the short sale. After all, they had nothing to lose; I don't request any fees from the seller at all. We simply don't get compensated at all unless we get the job done - it's as simple as that. So, the sellers agreed to give us a try.

After 35 days and a few price reductions, we got a great offer of $750,000 for the house. The sellers reluctantly executed the offer, worrying because the last value the short sale lender did was at $950,000. That's a big difference, but I knew the true value of the house and also knew that the last appraisal wasn't completed correctly. This time, when the appraisal was ordered I was on site, and brought supporting documents which proved the home's value.

The appraisal came back right at $750,000 and within 45 days the short sale lender issued approval letters, releasing the seller of $550,000 in debt that was owed on the mortgage! The sellers had purchased for $1.3 million in 2005 and sold for $750,000 in 2011 and the $550,000 loss was fully forgiven.

THANK YOU so much to my team for working so hard to communicate with all parties involved and getting the short sale approved in less than two months! Thanks for your dedication to customer service, document perfection and concise mitigation. :)