New Rules Made For Short Sales
Last week the Obama Administration’s Treasury released the new guidelines for the processing of short sales, titled Supplemental 09-09. These guidelines are for loan servicers who sign an agreement with Fannie Mae prior to Dec. 31 to participate in the Home Affordable Modification Program (HAMP).
Along with the guidelines for underwriting and servicing HAMP programs, the Treasury outlined its Home Affordable Foreclosure Alternatives Program (HAFA).
The HAFA program is of interest because short sales have been so difficult and time-consuming that buyers very often get frustrated and pull out leaving sellers frantically searching for another buyer. Streamlining the short sale process would speed up the sale, enabling the sellers to move into more affordable housing and the buyers to take ownership, releasing the banks to move on to the next – a win win for everyone.
The HAFA program sets the underwriting rules and guidelines for Deeds in Lieu of as well as short sales, but lenders are expected to want to try to short sale a property before they accept a DIL.
So, what has changed?
The requirements are these:
• The property is the borrower’s principal residence
• The mortgage loan is a first lien mortgage originated on or before Jan. 1, 2009
• The mortgage is delinquent, or default is foreseeable
• The current unpaid principal balance is equal to or less than $729,750
• The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.
The HAFA program goes into effect April 5. The servicers may elect to implement HAFA prior to April 5, provided that the servicer is able to collect and report all required information in the Supplemental Directives Reporting Requirements section.
There are two new required forms issued by the Treasury (in Supplemental Directive 09-09). The first is the Short Sale Agreement (SSA) which is not to be confused with CAR form SSA (which stands for Short Sale Addendum). This form is between the borrower and the servicer, outlining dates, responsibilities and roles for both to perform.
The second form is the Request for Approval of a Short Sale (RASS). This must accompany the SSA when submitting an offer to the servicer.
Along with the guidelines for qualifying, HAFA outlines specific requirements, such as the property must be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
No real estate professional will have commissions renegotiated as a requirement to the short sale approval so long as said commissions combined do not exceed 6 percent total, (this has a small exception clause stating unless the servicer has to pay a third-party contractor for assisting the listing broker.)
All servicers in the HAMP program must approve a list price or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
Servicers must fix a termination date not less than 120 days from the effective date of the SSA. The effective date must be stated in the SSA, along with any closing costs that the servicer will permit to be deducted from the gross sales proceeds expressed either as a dollar amount, percentage of the list price or a list of reasonable closing costs that the servicer will allow from the gross proceeds.
The servicers will not allow a second lien holder more than $3,000 aggregate between all subordinate liens. This may mean that the sellers may in some cases have to get the buyers involved in the negotiations with subordinate lien holders.
The completion of the short sale allows the servicer to give the borrower up to $1,500 out of closing funds to assist in the moving process, (formerly referenced as “cash for keys”). So long as the home is in move-in condition, the money will be released to the borrower.
As ever, this is going to require professional real estate practitioners with short sale experience to guide all the parties through this process, but with all the parties on the same page, we should see short sales exploding in the very near future.
Courtesy of Kat Hegg
Tags: Real Estate, Sellers, Selling a Home, Short Sales, Tax Credit
