A Much-Needed Road Map

As lenders adopt new federal guidelines, short sales should become less frustrating for all.

By Robert Freedman | February 2010

The short-sales process, often agonizingly long, may not speed up overnight, but there’s reason to believe that better days are ahead. The federal government’s long-awaited guidelines for standardizing short sales were released at the end of 2009, and although they don’t take effect until April, mortgage servicers have the option of implementing them early.

 

The short sales guidelines are part of the government’s new Home Affordable Foreclosure Alternative Program, known as HAFA, which is an add-on to the Obama Administration’s more wide-reaching Home Affordable Modification Program launched in early 2009. The idea is that if borrowers are eligible for the modification program but are unable to work out a plan to stay in their home, they—and their lenders—have a well-mapped route for executing a short sale or a deed in lieu of foreclosure.

 

The new HAFA program applies to the large volume of so-called “risky” loans that were issued outside of Fannie Mae and Freddie Mac guidelines during the housing boom, such as zero-down loans, option ARMs, and Alt-A mortgages that didn’t require extensive income documentation (see sidebar, “Which Loans Are Eligible?”). As of this writing, Fannie and Freddie were developing their own, similar guidance for loans they’ve backed.

 

The HAFA guidelines are voluntary, but major banks and servicers—including Bank of America, Chase, Wells Fargo, and Citimortgage—as well as dozens of smaller lenders, are expected to participate, clearing up the logjam of potential short sales on their books.

 

To participate, a mortgage servicer must have opted in to the government’s Home Affordable Modification Program by the close of last year. Through the end of November 2009, there were 78 such mortgage servicers, which together cover approximately 85 percent of eligible mortgage debt, according to the program’s servicer performance report. 

 

 

How the Rules Will Help

Observers say the HAFA guidelines speak to many of the real estate industry’s ongoing frustrations over short sales. For starters, lenders will have a financial incentive to get these deals moving. Servicers get $1,000 to cover their costs, and subordinate lien holders get up to $3,000 through a matching arrangement in exchange for relinquishing their lien. In addition, borrowers receive $1,500 to defray their moving costs.

 

The guidelines also include standardized forms, procedures, and timelines—and allow the borrower to receive preapproved short sale terms prior to the property listing. These measures should address the resistance of serious buyers to invest time, money, and effort into a purchase offer without having any assurance that the lender will accept their offer or even look at it in a reasonable time frame (or, just as bad, accept a last-minute rival offer).

 

 Also, the HAFA rules require that borrowers be fully released from future liability for the debt. That will be a relief to home owners in recourse states who would otherwise remain liable for debt collection. Slightly fewer than half of the states are recourse states.

 

 

Getting New Systems In Place

Bank of America in late 2009 rolled out an initiative to dovetail with the guidelines, and other lenders may follow with their own programs that anticipate the new rules. Through its “cooperative program,” the bank’s mortgage servicers reach out to owners who are unable to modify their mortgage. “We developed our program in anticipation of the federal guidelines,” says David Sunlin, Bank of America Home Loans senior vice president who oversees the company’s foreclosure and REO activities. Sunlin participated in a webinar hosted by REALTOR® Magazine in mid-December to talk about the bank’s new procedures.

 

Sunlin says the bank’s program gives troubled owners “a preapproved solicitation for a short sale” along with proactive processing of all the required steps: “appraisals, review of financials, investor approvals, mortgage insurer approvals, second-lien approvals—all of these can be done while the property is being marketed,” he says, “so when an offer is brought to the table we can do a much quicker turnaround.”

 

It will take months for lenders to modify their procedures in accordance with the guidelines (and, for agency loans, in accordance with the Fannie Mae and Freddie Mac guidelines), and even then, the new rules surely won’t be a cure-all. But there does seem to be a light at the end of the tunnel. 

 

Sunlin says the fall-out rate for short sales at Bank of America has been as high as 70 percent. His hope is that with the new guidelines, that rate will drop to something similar to that for REO transactions, which have a 10 percent to 15 percent fall-out rate.

 

“Short sales have always been a reactive process,” he says. “We need a proactive process, and the guidelines are a good start.” REALTORS® no doubt would like to see that hold true.

 

 

Which Loans Are Eligible?

The Home Affordable Foreclosure Alternative Program provides short sales guidelines for loans not owned or guaranteed by Fannie Mae or Freddie Mac (those agencies are expected to release their own, similar guidance). The following conditions also must be met:

 

• 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 reasonably 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.

Despite what seemed to be a flattening %u2013 and in some cases even a reversal %u2013 of home price declines last year, there are signs that the dreaded %u201Cdouble dip%u201D is developing in as many as one in five markets, according to data released Wednesday by Zillow.

While residential values in some markets appear to have found their bottom, Zillow has observed that prices in 29 of the 143 markets is tracks have leveled off or begun to decrease again after showing at least five consecutive monthly increases %u2013 early signs of what could become a second prolonged period of declines, the company warned.

%u201CWe have seen strong stabilization in home values during 2009, [but] there are clear signs that they will turn more negative in the near-term,%u201D said Stan Humphries, Zillow%u2019s chief economist. %u201CWhat we saw in mid-2009 was a brief respite from a larger market correction that has not yet run its course.%u201D

According to Zillow, the largest markets most at risk to see a double dip in prices include the metro areas of Boston, Atlanta, and San Diego.

Humphries said, %u201CThe good news is that, for those markets that will see a double dip in home values before reaching a definitive bottom, this second dip will not be a return to the magnitude of depreciation seen earlier, but rather will look more like a modest aftershock of the earlier downturn.%u201D

An additional 29 markets, including the Los Angeles and New York metros, increased on a month-over-month basis each month throughout the fourth quarter, but Zillow says the rate of increase slowed from November to December, and several appear likely to experience months of sustained declines in early 2010.

I’ve had a week to mull over the announcement of the iPad and I’ve come to this conclusion.

The iPad is 26 years coming.

Those who blast the iPad as just a large iPhone, I think are missing the point. Fraser Speirs puts it best – they’re most likely in “Future Shock“.

Let’s take a step backwards…

(AP Photo/Paul Sakuma)

When it launched in 1984, the Macintosh was meant to be “the computer for the rest of us“. Its mouse-based GUI redefined what it meant to use a desktop computer. It presented a revolutionary new paradigm which, once adopted by its competitors, was overwhelmingly successful.

Within a few years, the mouse was the defacto way we interacted with our machines and we haven’t looked back since.

So, looking forwards, I believe the iPad is the next evolutionary leap. It’s about us taking the next step towards that simple goal. A place where the complexity, the barriers and the fear of computing have all but disappeared.

And just like the iPhone forced us to rethink mobile computing, the iPad will force us to rethink portable (read, recreational) computing. This is a device meant for the coffee shop and the living room. And to be sure, with the introduction of the iPad, the laptop won’t disappear. But just like the desktop before it, it will likely be banished to niche uses.

So what’s taken it so long?

The hardware is finally here. Combine a really fast chip (Apple’s new A4 silicon) and capacitive touch screens, which give us the ability for fluid gesture-based interaction (multi-touch), and you have the launch of a brand new computing metaphor.

It will redefine the way we approach our everyday digital tasks. Or, to put it into Apple-speak, become “the best way to experience the web, email, and photos.”

So what does this mean for real estate?

Well, you probably are not going to be writing college-length blog posts on a device like this – but you very well might find yourself creating a CMA.

Single, simple tasks will the order of the day on the iPad and the many devices that will follow its lead.

And bottom line, is that, for vendors, the launch of the iPad provides one of the single biggest opportunities to redefine the way your customers (brokers and agents) interact with your product. For Realtors, the iPad provides a tantalizing glimpse of what’s possible and ultimately, what you should demand from your vendors.

Just look at what Apple itself has done to some of its core applications.

It is about making computing more joyful, more simple, more intuitive. It’s about removing the artificial barriers to your work flow and letting you focus on what’s really important. Despite over two decades of innovation in this space, that’s something that can’t be said of 95% of all real estate business software right now.

Smart vendors recognize the opportunity presented by the iPad. Already, Mac software developers Omni Group have promised they will move all five of its products to the iPad this year. I expect many more to follow.

Let’s just hope we see the same from the brave in real estate technology too.

Sign up for the 1000watt Spotlight e-newsletter
and keep up with the ideas, apps and people that are changing real estate.

A Much-Needed Road Map

As lenders adopt new federal guidelines, short sales should become less frustrating for all.

By Robert Freedman | February 2010

The short-sales process, often agonizingly long, may not speed up overnight, but there’s reason to believe that better days are ahead. The federal government’s long-awaited guidelines for standardizing short sales were released at the end of 2009, and although they don’t take effect until April, mortgage servicers have the option of implementing them early.

 

The short sales guidelines are part of the government’s new Home Affordable Foreclosure Alternative Program, known as HAFA, which is an add-on to the Obama Administration’s more wide-reaching Home Affordable Modification Program launched in early 2009. The idea is that if borrowers are eligible for the modification program but are unable to work out a plan to stay in their home, they—and their lenders—have a well-mapped route for executing a short sale or a deed in lieu of foreclosure.

 

The new HAFA program applies to the large volume of so-called “risky” loans that were issued outside of Fannie Mae and Freddie Mac guidelines during the housing boom, such as zero-down loans, option ARMs, and Alt-A mortgages that didn’t require extensive income documentation (see sidebar, “Which Loans Are Eligible?”). As of this writing, Fannie and Freddie were developing their own, similar guidance for loans they’ve backed.

 

The HAFA guidelines are voluntary, but major banks and servicers—including Bank of America, Chase, Wells Fargo, and Citimortgage—as well as dozens of smaller lenders, are expected to participate, clearing up the logjam of potential short sales on their books.

 

To participate, a mortgage servicer must have opted in to the government’s Home Affordable Modification Program by the close of last year. Through the end of November 2009, there were 78 such mortgage servicers, which together cover approximately 85 percent of eligible mortgage debt, according to the program’s servicer performance report. 

 

 

How the Rules Will Help

Observers say the HAFA guidelines speak to many of the real estate industry’s ongoing frustrations over short sales. For starters, lenders will have a financial incentive to get these deals moving. Servicers get $1,000 to cover their costs, and subordinate lien holders get up to $3,000 through a matching arrangement in exchange for relinquishing their lien. In addition, borrowers receive $1,500 to defray their moving costs.

 

The guidelines also include standardized forms, procedures, and timelines—and allow the borrower to receive preapproved short sale terms prior to the property listing. These measures should address the resistance of serious buyers to invest time, money, and effort into a purchase offer without having any assurance that the lender will accept their offer or even look at it in a reasonable time frame (or, just as bad, accept a last-minute rival offer).

 

 Also, the HAFA rules require that borrowers be fully released from future liability for the debt. That will be a relief to home owners in recourse states who would otherwise remain liable for debt collection. Slightly fewer than half of the states are recourse states.

 

 

Getting New Systems In Place

Bank of America in late 2009 rolled out an initiative to dovetail with the guidelines, and other lenders may follow with their own programs that anticipate the new rules. Through its “cooperative program,” the bank’s mortgage servicers reach out to owners who are unable to modify their mortgage. “We developed our program in anticipation of the federal guidelines,” says David Sunlin, Bank of America Home Loans senior vice president who oversees the company’s foreclosure and REO activities. Sunlin participated in a webinar hosted by REALTOR® Magazine in mid-December to talk about the bank’s new procedures.

 

Sunlin says the bank’s program gives troubled owners “a preapproved solicitation for a short sale” along with proactive processing of all the required steps: “appraisals, review of financials, investor approvals, mortgage insurer approvals, second-lien approvals—all of these can be done while the property is being marketed,” he says, “so when an offer is brought to the table we can do a much quicker turnaround.”

 

It will take months for lenders to modify their procedures in accordance with the guidelines (and, for agency loans, in accordance with the Fannie Mae and Freddie Mac guidelines), and even then, the new rules surely won’t be a cure-all. But there does seem to be a light at the end of the tunnel. 

 

Sunlin says the fall-out rate for short sales at Bank of America has been as high as 70 percent. His hope is that with the new guidelines, that rate will drop to something similar to that for REO transactions, which have a 10 percent to 15 percent fall-out rate.

 

“Short sales have always been a reactive process,” he says. “We need a proactive process, and the guidelines are a good start.” REALTORS® no doubt would like to see that hold true.

 

 

Which Loans Are Eligible?

The Home Affordable Foreclosure Alternative Program provides short sales guidelines for loans not owned or guaranteed by Fannie Mae or Freddie Mac (those agencies are expected to release their own, similar guidance). The following conditions also must be met:

 

• 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 reasonably 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.

 

 

Robert Freedman is a senior editor of REALTOR® magazine. He can be contacted at rfreedman@realtors.org.