The details are in the Wall Street Journal article from today’s paper titled “Q&A: What Homeowners Need to Know on the Deal.”
Who does the settlement cover?
The settlement covers borrowers who have loans that are serviced by one of the five big banks: Ally Financial Inc./GMAC Mortgage, Bank of America Corp., Citigroup Inc.,J.P. Morgan Chase & Co. and Wells Fargo & Co. These banks handle payments on 55% of U.S. mortgages, according to Inside Mortgage Finance………
That’s what some borrowers are getting that have negative equity in their home. Here is what the article from CNBC had to say:
It’s called Responsible Homeowner Reward, and today, one of the nation’s largest mortgage insurers, PMI Mortgage Insurance, joined in.
Here’s how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months (LVG has worked out the contract with the participating lender/investor.
After that period, the borrower will be paid anywhere from 10 to 30 percent of the loan principal, depending on the contract, in cash. The lenders/investors pay LVG, which receives a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this bonus.
Getting a mortgage on a short sale isn’t much different then getting a loan on a foreclosure or regular sale. The same documentation is needed. The way I handle them is different then most but I feel my approach is the best route.
As soon as your offer is accepted by the seller I like for the buyer to send me a copy of the contract so that I can prepare the loan documents and request the information from the buyer to submit for a loan commitment. I understand that the bank hasn’t accepted it and it could be months but I want to get the mortgage commitment upfront whether it closes in 2 months or 6 to 12 months. The reason I do this is because once the bank does approve the short sale they may put an unrealistic timeframe for closing such as a 2 week closing. Normally this would be very difficult if not impossible to do however since we already started the process all I need to do is get updated bank statements, a paystub, and order the appraisal.
This is a win, win because if the short sale doesn’t get approved you now have a mortgage commitment to submit with your offer on another home making your offer almost as good as a cash offer. Unfortunately a pre-qualification or pre-approval letter isn’t worth the piece of paper it is written on but the commitment is because an underwriter has reviewed the file and confirmed the borrower can get financing as long as they stay within the parameters on the approval.
The link below identifies the Fannie Mae loss mitigation options that are available to assist borrowers experiencing financial hardship.
It is 19 pages and goes through a temporary and a long-term hardship. I am not an expert when it comes to this because I don’t do modifications but I wanted to make sure to share it with you.
https://www.efanniemae.com/sf/servicing/pdf/loanworkoutfactsheet.pdf
I think anyone in the real estate business will tell you that a short sale is better. Both of them affect your credit about the same amount but if you are trying to buy another home you will be able to do so earlier when you have a short sale on your credit versus a foreclosure.
Also, with a short sale you can get away with not having a deficiency balance so on your credit report it shows nothing is owed but with a foreclosure there will be a balance owed.
The article below goes into detail about this and also comments on how it can affect your family http://kcmblog.com/2011/05/04/is-a-short-sale-or-a-foreclosure-my-best-option/
Here is how you are affected when doing either a short sale or foreclosure. A short sale is always going to be better than a foreclosure.
On a Conventional loan with Financial Mismanagement it is as follows:
If you can show an extenuating circumstance than all of the above goes to:
Fannie Mae defines a unique hard ship as:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1011.pdf
FHA requires 3 years and VA is 2 years. FHA & VA does have a short sale waiver, see attached on pages 4-5. There are exceptions to a short sale on an FHA or VA loan, Short Sale Policy Waiver.
The years and guidelines mentioned above are subject to change without notice and can vary from bank to bank.
If you know of anyone in need of a loan modification I would recommend for them to attend this event.
The nonprofit Neighborhood Assistance Corporation of America — hero to the struggling homeowner, bully to big banks — said it will conduct its third South Florida mortgage counseling extravaganza Aug. 27-31 in West Palm Beach.
The Boston-based group touts an 80 percent success rate, crediting much of the achievement to hundreds of bank representatives who attend its programs and meet face-to-face with homeowners.
There was an article back in December about this and 80% that were expected to receive workouts within weeks according to CNNMoney.
“Wynn was able to get his modification at a “Save the Dream” event offered by the Neighborhood Assistance Corporation of America (NACA) in New York City last Friday. Lenders from nearly all the major banks and servicers were in attendance and promising to restructure loans based on what borrowers could afford. As a result, many homeowners walked in with their mortgage problems and walked out with solutions. In fact, according to Bruce Marks, NACA’s founder, 40% of attendees left with decisions the same day. About 80% are expected to receive workouts within weeks. His organization has already hosted about 400,000 borrowers at more than a dozen of these events.”
This was sent to me by Rob Chrisman. “A study put out by Deutsche Bank ranked GMAC ranked as the top servicer among all prime mortgage servicers based on short sale timelines – six months! The investment bank’s survey showed that a short sale generated a higher recovery than an REO sale. For “prime” short sales, GMAC was the fastest, followed by CitiMortgage (7.5 months) and Wells (8 months). DB’s study showed that BofA was the slowest with a 13 month short sale timeline. For “subprime” Wells came in first (15 months), followed by HomEq and then Saxon. Option ARM short sale speedsters were EMC, Aurora, and GMAC. ShortSales”
Where should I begin? Well, don’t let the name fool you because there is nothing short about them. I am working on one right now that is going on it’s 10th month. Lucky for me as a Mortgage Professional I just have to pre-qualify you and then sit back and wait. Unfortunately the buyer, realtors, and attorneys can’t say the same.
The reason I wanted to write about this topic is because so many times we, including myself, will complain about how slow the banks are but we sometimes forget that there might be some explanation for it. The article does a good job of bringing up those reasons
I can’t tell you exactly why the bank is dragging its feet, but I do know that lenders want to make absolutely certain that their borrowers aren’t trying to get out of mortgages they still can afford. Many people are hiding assets and otherwise lying to their lenders to get out from under loans on which they can still make the payments but choose not to.
This is very real and I am sure there will be many that will buy the deficiency judgments from the banks for pennies on the dollar and then go after the homeowners.
Lenders will file a tidal wave of lawsuits against homeowners in the next few years as a way to recoup losses when home sales or foreclosure auctions don’t result in enough money to pay the mortgages in full, real estate and legal analysts say.
Under Florida law, banks have five years from the date of the sale to file for so-called deficiency judgments and up to 20 years to collect. Lenders can garnish wages or make claims on borrowers’ assets.
Located in South Florida, Justin Miller has established himself as a leader in the mortgage community for his expert advice and understanding of the current real estate climate. Contact him.
Jonathon Becker (Coastal Credit Clinic): Justin- GREAT blog post! This is a HUGE questions many of my clients h...
Sean: Justin- Great article...would be great to understand the differences i...
Phil Himes: You are so correct! Many of my clients are currently looking at purch...
Stock quote: Good blog post, nice efforts. It couldn’t appear to have been penned a...
Upside Down Guy: This sounds like a great program for someone like me but my lending in...