Steve OBrien

What about the Mortgage Insurance companies?

We have all been hearing a tremendous amount of hype about the new HAFA regulations and I believe they are a step in the right direction, but I don't believe they address the Mortgage Insurance industry or the investors behind the mortgage. All the emphasis was put on the lender or servicer and when we have mortgage insurance in the mix we have a whole new problem which can kill the short sale. The new HAFA regulations sound good but if the mortgage insurance company and the investor do not have to follow the rules or refuse to go by the guidelines, how many of these short sales are going to be done smoother and faster than in the past?

I love the idea and the theory behind the Home Affordable Foreclosure Alternative program but I can't help but wonder how much real impact it will have in clearing these homes destined to go to the foreclosure block? The bank may very well want to follow the guidelines but the mortgage insurance company and the investor behind the loan may not. Unless we get all involved to get on board, these guidelines will do nothing to reduce the number of foreclosures going through the court systems right now.

Now for those of you who did not see the 60 Minute's episode last week, along with all the foreclosures in the system from legitimate home owners that have had a definitive hardship or life changing event, we have a growing number of home owners who can afford to pay their mortgages and refuse to because of the return on their investment. These numbers could topple the whole real estate recovery, if there ever was one to begin with.

Now I know this all sounds a little negative and I don't want to be, but I think we need to address the foreclosure problem with some legitimate solutions that can produce some real results to get these homes off the market and I'm not sure HAFA is going to do this. Maybe if we but some bite in to the guideline to get these investors and mortgage insurance companies participate with some real penalties for not following than we might see some results.

Wow, I'm not sure how the market is in your neck of the woods but here in SW Florida it is almost like the crazy movies of the Wild West. On one side the Florida legislature is trying to get a proposed "Foreclosure Bill of Rights" through while bankers are trying to push a bill to do away with legal proceedings in foreclosures altogether by creating a non judicial foreclosure system which they say should speed up foreclosures by 90 days.

On another front, local governments burdened with the high cost of trying to push through a record number of foreclosures are looking for lenders to pick up more of the costs of these cases. This should mean that short sales will be increasing as foreclosures are getting more expensive for the lenders. The new HAFA (Home Affordable Foreclosure Alternative Program) that is part of the HAMP (Home Affordable Modification Program) tries to do this with new rules that should speed up the short sale process. This should make everyone happy and take care of the problem a little faster.

Maybe it's just me or maybe I'm just not getting it, wouldn't it be better for everyone if they made the short sales faster and easier.

1) The banks would fair better because the homes would be in much better shape and the prices would be higher.

2) The owners wouldn't get hit as hard on the credit side and could get their lives back in order in a few years.

3) The courts wouldn't have the backlog of cases to handle and the local governments would not have the extra expense of all the court costs.

I've heard of cases where the lenders are even paying moving expenses or incentives like cash payouts to entice a homeowner to short sell a house rather than making the lender foreclose. Citigroup, for instance, plans to announce a pilot program that would allow delinquent borrowers who do not qualify for or decline mortgage relief the opportunity to stay in their homes up to 6 months without making payments before turning over the keys, in return for keeping the property in good condition.

Moody's economy.com has forecast the number of short sales and the number of borrowers who surrender their deed in lieu of foreclosure will increase more than 50 percent this year. Even with this increase the powers to be must do a better job to get the more than 1.9 million homes predicted to be lost to foreclosure this year through the system and sold on the market at a quicker pace.

One thing is for sure, that this year is gearing up to be a crazy and wild time in the Real Estate world. The best thing to do is be ready for it.

In a continuing effort to clear the troubled housing market of foreclosed properties, the Treasury Department has released forms and guidelines for its new Home Affordable Foreclosure Alternatives Program (HAFA). While this latest directive presents as a complex compilation consisting of some 43 pages of guidelines and forms, the basic elements and goals of the program are relatively clear. You can view the documents in their entirety at https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf.

As an adjunct to the Home Affordable Modification Program (HAMP), HAFA provides incentives to borrowers, lenders, and investors alike, that are designed to streamline and make more viable the short sale and Deed in Lieu of Foreclosure processes. This new directive requires lenders to provide additional alternatives to troubled home owners with HAMP eligible loans, specifically through short sales and Deeds in Lieu of Foreclosure (DIL).

HAMP eligible loans are those which meet the following conditions:

•· 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 (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower's gross income.

•·

(Note: HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, who are expected to offer comparable programs in the near future.)

HAFA attempts to simplify and streamline the short sale and DIL processes by incorporating the following incentives:

•· Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.

•· 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 timeframes.

•· Provides financial incentives to borrowers, servicers and investors. $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).

The directive is an obvious attempt to divert lenders from initiating foreclosure proceedings and is quite clear in its intent, indicating that; pursuant to lender policy, every potentially eligible borrower must be considered for HAFA before the loan is foreclosed or the servicer allows a pending foreclosure sale to be conducted. The directive goes on to say that lenders must consider HAMP eligible borrowers for HAFA within 30 days of the date the borrower:

•· Fails to qualify for a HAMP Trial Period Plan;

•· Fails to complete a HAMP Trial Period Plan;

•· Is delinquent two or more consecutive payments on a HAMP modification; or

•· Requests a short sale or Deed in Lieu of Foreclosure

( Note: Borrowers must be considered for a HAMP modification and other retention programs offered by the servicer prior to being considered for HAFA.)

While the program does not go into effect until April 5, 2010, loan servicers may opt to implement HAFA sooner provided they meet certain criteria outlined in the directive. Borrowers may be accepted into the program if a short sale or DIL agreement, that meets program guidelines, is fully executed by the borrower and received by the loan servicer on or before December 31, 2012.

So you've heard that the housing market has finally reached rock bottom and you are feeling like you missed the boat? Have you been kicking yourself for being too indecisive when opportunity was pounding on the door? Well don't start tying your own noose just yet; your ship might very well be coming back to shore.

The U.S. Department of Treasury's Home Affordable Modification Program (HAMP) aimed to stem the flow of foreclosures by encouraging mortgage holders to provide loan modifications and other retention programs to troubled home owners. Apparently coming to the realization that HAMP was not effectively converting delinquent loans and providing ownership opportunities, a second directive was handed down in November of last year.

The second blow in Treasury's one-two punch program is called the Home Affordable Foreclosure Alternative Program, or HAFA, and is to go into effect April 5, 2010. The HAFA directive is quite clear in its intent, requiring lenders to provide distressed borrowers with additional alternatives to foreclosure, specifically through short sales and Deeds in Lieu of Foreclosure.

Under HAMP approximately 750,000 borrowers were given loan modifications or placed on other loan retention programs on a trial basis, of those only 30,000 have been converted to permanent payment cycles. HAMP failed miserably in its effort to stem the flow of foreclosures and clear the market of distressed homes. It was due to this lack of effectiveness that the Treasury Department resorted to HAFA.

What does all this mean to you, the would-be investor?

It means, quite likely, that a virtual flood of nearly three quarters of a million defunct properties will be hitting the market in the coming months as short sales or Deeds in Lieu of Foreclosure. Furthermore, while short sales and Deeds in Lieu are notoriously complex and difficult transactions to manage, HAFA provides incentives for borrowers, lenders, and investors that help simplify and streamline the process.

These provisions, coupled with a desire to facilitate the goals of the directive may prompt lenders to play a more cooperative role in the sales process. Distressed borrowers are more likely to embrace the short sale option due to increased pressure from lenders and financial incentives provided through HAFA. In addition, because these loans have already met HAMP eligibility requirements, much of the paperwork is already done, relieving much of the stress and tedium often incurred by the home owner.

In conclusion, if you are interested in making an investment in real property, the window of opportunity has not yet closed. With such a large influx of distressed properties poised to hit the market, prices are likely to dip once again. Even if you are still averse to entering into a short sale or Deed in Lieu of Foreclosure transaction, you may see a drop in the mean price of non-distressed properties as well; such are the rules of supply-side economics.

At what point does the American taxpayer finally say, "Enough is enough!"? It wasn't enough when the Obama Administration offered up our hard earned dollars to bail the banking industry out of the financial mess they created for themselves. It wasn't enough when we saw reports of ongoing fiscal irresponsibility. Are the American people going to allow big money lenders to act with impunity forever?

Recent allegations of still greater abuses of power may answer that question once and for all. In her recent report on CNBC, real estate reporter Diana Olick brings to light, once again, the audacity of the banking industry.

In an economy defined by rising interest rates, double-digit unemployment, and declining property values, foreclosures are at an all-time high. In November of last year the Treasury Department handed down its HAFA directive in a continuing effort to clear the housing market and stem the flow of foreclosures. HAFA requires primary lien holders to provide distressed home owners with foreclosure alternatives, specifically in the form of short sales or Deeds in Lieu of Foreclosure.

During the housing boom millions of borrowers turned equity in their home into cash in their pocket through home equity loans and secured lines of credit. Many applied for ‘piggy back' loans to get more favorable terms or interest rates on their primary mortgages. These secondary or ‘junior' liens are oftentimes the ‘deal breaker' when negotiating short sale transactions.

A short sale occurs when a lien holder agrees to accept less than the total amount due on a primary mortgage, and is often the last resort before a home goes into foreclosure. Secondary lien holders (those lenders holding the note for a home equity or ‘piggy back' loan) must agree to waive the lien in order for a short sale to occur. Typically, the primary lender negotiates partial payment on secondary liens in an effort to gain approval from junior lenders. If these negotiations fail, the short sale does not occur and the property goes into foreclosure, in which case the primary lien holder retains the property and the junior lien holder gets nothing.

Recent reports suggest that some lenders are using this ‘veto' power as leverage in their efforts to satisfy the borrower's outstanding debt. Since most secondary lien holders have little to gain from a short sale transaction, many are allegedly requesting additional payment ‘on the side' from real estate agents and/or buyers, the implication being, no payment, no sale.

According to Jeremy Brandt, CEO of several companies that help facilitate short sales, at least two hundred agents have had these request made by representatives of some of the nation's largest lenders. J.P. Morgan Chase, CITI Mortgage, and Bank of America, just to name a few. According to Brandt these requests are made confidentially, keeping primary lenders out of the loop and record of the payment off the books. Once payment is received, usually in the form of a cashier's check, the short sale is allowed to go through. That my friends, is illegal.

Enough is enough!