URGENT: New Fannie/Freddie Short Sale Guidelines Take Effect June 15, 2012

Fannie Mae and Freddie Mac have announced aggressive new guidelines applicable to short sales involving FM loans.  The intention, as with most of the recent changes in federal “distressed property” programs, is to streamline the short sale process.  Many experts, this writer included, harbor serious doubts whether the guidelines can be achieved.

Chief among the new guidelines, effective June 15, 2012, is the requirement that servicers review and respond to short sale offers or requests within 30 days.  Servicers requiring more than 30 days must transmit weekly updates to the borrower/seller, and in all cases provide a final response within 60 days.  For HAFA short sales, the clock starts ticking once the borrower has presented a complete short sale approval package.  Requests for pre-approval of short sales also must be completed within the new time frames.

As one who has been tracking short sales since 2007, I frankly question whether these new deadlines can — and will — be met.  Certainly, I have observed situations where short sales are processed start-to-finish in 2 months or less; however, these are far and away the exception than the rule.  More typically, the short sale process from submission of the borrower’s package to issuance of approval by the servicer is 3-4 months or longer.  And indeed the timeline can be extended significantly where short sale approval must be issued by more than one lender/servicer.

The new guidelines provide financial incentives to servicers that complete short sales within the new FM timeline.  In addition, banks servicing Fannie loans risk fines and other penalties if they fail to follow the guidelines.  However, from what I’ve been able to determine, these penalties represent a proverbial “slap on the wrist.”  Only time will tell whether servicers that have to date have dragged their feet in processing short sales will now suddenly “snap to” and provide the timely review and approvals that have left far too many borrowers hanging.  Hope springs eternal….

Here is a link to a complete copy of the Servicer Guide Announcement:  https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1207.pdf



Lenders Pushing Back on HARP 2.0

The blogosphere is chock-full of articles announcing the most recent and substantial changes to the federal government’s HARP 2.0 refinance program.  The most significant and widely touted change to the program is its elimination of loan to value ratios that previously had limited many homeowner’s access to the program.  As now designed HARP 2.0  purports to allow for unlimited loan-to-value (LTV) on most program refinances.  Great news, right?  Well, not so fast.

As author and mortgage expert Dan Green writes this week, “[A]s many underwater homeowners are finding out the hard way, just because HARP allows it, that doesn’t mean banks will do [it].”  Statistical data compiled by Green establishes that many major lenders are restricting HARP 2.0 refis to owners with loan to value ratios in the 105% to 125% range.  Unfortunately, this leaves an enormous portion of the underwater sector out in the cold.

Over the last several years I have consulted with hundreds and hundreds of distressed property owners in Northern California, and particularly in Alameda and Contra Costa counties.  Many distressed homeowners in these regions have LTV ratios of 200% and more.  Green’s statistics show that less than 5% of HARP 2.0 mortgage refinance applicants fall within this range.  Which means that, even for those folks who otherwise meet the program’s eligibility criteria, they’re not being helped.

Moving forward, it will be critical to determine which lenders are in fact honoring the unlimited LTV criteria.  I will do my best to keep you apprised of the identity of these lenders.  In this regard, it is critical to recall that HARP 2.0 does not require homeowners to refinance through their existing lender.  Any bank representative that advises you to the contrary simply is incorrect.

Please let me know if you think you or your client may benefit from HARP 2.0, and I’ll do my best to help you select a qualified mortgage professional in your area to help with the application process.  Meanwhile, for a complete description of the current program guidelines, including a clear and comprehensive set of FAQ’s, I refer you to Dan Green’s excellent website: http://themortgagereports.com/259/harp-making-home-affordable-guidelines.

URGENT – Bank of America announces changes to their short sale process

Real estate professionals with pending Bank of America short sales need to be aware of significant changes to the Bank of America short sale process.  Released on April 2, the changes, “aimed at streamlining and expediting the process,” include new requirements for initiating a short sale and changes to Equator.

Beginning April 13, 2012, Bank of America will require the following five forms to be submitted to initiate a short sale:

  1. Bank of America Third-Party Authorization Form;
  2. IRS Form 4506-T  Request for Transcript of Tax Return;
  3. 60-day Estimated HUD-1 (or HUD-1 with closing date if shorter than 60 days;
  4. Signed Purchase Contract including Buyers Acknowledgement and Disclosure;
  5. Bank of America Short Sale Purchase Contract Addendum.

If you currently have a short sale file with Bank of America, you will need to complete any outstanding tasks in Equator before April 13. Look for the tasks titled “Submit Short Sale Offer,” “Upload Offer Documents,” and/or “Upload Supporting Documents.”

If these tasks are not complete by April 13, you may be required to re-upload all documents to match the new system (that means five new documents, even if you were only missing one). Your file may also be declined, depending on your open tasks time compared to average timelines.

As always, it is imperative to stay current on the most recent changes affecting your client’s transaction.  I will endeavor to provide all relevant information as it becomes available.  If you have questions or concerns about the new process requirements, please contact me.

Important HAFA Program Changes Announced

The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option.  The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately.  They include:

  • There are no longer any occupancy requirements for HAFA eligibility.
    Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months.
  • The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
  • Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
  • Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
  • Credit bureau reporting of HAFA transactions are amended as follows:
    • If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified:  Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
  • The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners.  Certainly, the increase in the amount of gross proceeds available to settle junior liens should help.  This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions.  Of course, as with all previous program changes, the proof will be in the pudding.  Stay tuned….

HAFA: Hope or another hoax?

Like many professionals in the distressed property arena, I was genuinely excited with the federal government’s roll out last year of the HAFA short sale program.  Since the real estate meltdown began in 2007, those of us advising potential short sale candidates experienced growing frustration with the interminable delays of most lenders in processing “traditional” short sale requests.  Too often, those delays translated into lost
buyers, understandably unwilling to “hang in there” indefinitely while overwhelmed lenders dithered.

The HAFA program’s structure seemed clearly directed at this core program.  By putting the lender approval process at the front of end of the short sale process, sellers and their agents would be able to market properties as “pre-approved,” thus creating transparency and predictability for interested buyers.  And in fact, initial experience with the program seemed to warrant guarded optimism that we were finally on the road to smoother processing of the growing number of short sale transactions.  More recent experience raises serious questions whether that optimism was misplaced.

On one hand, the Department of Treasury’s internal statistics through April 2011 purport to show that roughly 46% of HAFA Agreements started resulted in closed transactions.  My own experience belies this rosy picture.  We know that currently roughly 70,000 HAFA transactions are in some stage of processing. What these numbers and the DOT’s statistics don’t reflect is the number of HAFA applicants whose applications have been rejected for reasons wholly unrelated to their program eligibility.

Several of my clients have been told by lender representatives that the lender does not participate in HAFA, even though the lender is listed on the DOT’s approval lender list.  Other clients have been summarily dismissed from HAFA following submission of required paperwork because program time deadlines were not met, even though the failure to meet those deadlines resulted from the lender’s own processing delays.  Yet other lenders have outsourced HAFA processing to incompetent third party processors.  The horror stories abound.

My concern is that, like the once ballyhooed and now roundly reviled HAMP program, lenders lack the qualified bandwidth to effectively process qualified HAFA applications.  And with the frequent and multiple revisions to program eligibility guidelines, it’s not surprising many lenders simply don’t know if an applicant is qualified.  The trend seems to be to simply reject the applicant, hope they don’t push back, and instead opt for HAFA’s far less beneficial deed-in-lieu program or simply walk away.  Ultimately, and once again, it is the distressed homeowner who gets the shaft.

Hardly the hopeful we had once envisioned.  Stay tuned.

Brian Ripley's Video Welcome!

I’m here to inform and educate property owners, and the professionals who advise them, on matters affecting the strategies they develop, and the decisions they make, regarding their properties. 

Help with Underwater Mortgages

Welcome to my inaugural blog post, which I am launching concurrent with the roll out of my “new and improved” website, www.brianaripley.com.

My Objectives

My objectives in starting this blog and website are multiple: 

  • Act as a reliable source for important developments affecting the “distressed” property market in the San Francisco Bay Area;
  • Inform and educate property owners, and the professionals who advise them, on matters affecting the strategies they develop, and the decisions they make, regarding their properties;
  • Facilitate a conversation on how we can all work collaboratively, with each other and with lenders, to achieve better and more predictable short sale results.

About Me

A little about me:  I have been practicing law in the Bay Area since 1983.  In 2007, the primary focus of my practice shifted to “underwater” real estate following the meltdown in the state and regional economies.  Since that time I have counseled over 1,000 property owners on issues relating to their real estate investments.  I have presented dozens of seminars and workshops for real estate and financial professionals on how to succeed and thrive in this challenging new economy.  As a result, I am now considered among the region’s most knowledgeable and experienced experts in the field of “distressed” real estate.

The Focus

Each week I will share my perspective on “what’s really happening” in the underwater property market.  I recognize some of my comments may ruffle feathers.  But I believe it is critical that as a community we bring real clarity to the table, foregoing both the “doom and gloom” rhetoric pervasive in the media and the “Pollyanish” optimism too often prevalent among industry commentators.  Armed with accurate information and an attitude of cooperation among all the players, we can move beyond merely surviving these difficult times by building a community of like-minded professionals who are succeeding and thriving in the face of adversity.