Major Mortgage Servicers Freeze Foreclosure Cases in 23 States

Bank of America, JP Morgan Chase and GMAC in the last two weeks have announced a moratorium on foreclosure cases pending resolution of paperwork deficiencies.

Those states affected are Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, Wisconsin.

This could place tens of thousands of foreclosure cases in limbo for months or years.

Excerpts from article 

by David Streitfeld (10/1/2010) 

published in the New York Times:  

"The problem for all the lenders that have announced moratoriums stems directly from their attempt to deal with an unprecedented number of foreclosures.

Confronted with so many cases, the lenders tried to process them on a wholesale basis, with the goal of avoiding the expense of a full trial and instead getting summary judgments.

The tool for doing this was the so-called robo-signers, in which midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume.

When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality and they will refile the proper affidavits. The defense lawyers say the practice calls the cases, and indeed the entire process, into question."

Vexing Prognostication from Fannie

WASHINGTON, D.C. — Fannie Mae's latest national housing survey finds that most Americans believe the housing market has reached bottom, but they are more cautious about owning a home. 


Seventy percent of Americans think it is a good time to buy a house, compared with 64 percent in a similar survey conducted in January 2010. But 33 percent — up from 30 percent — of all respondents said they would be more likely to rent their next home if they were to move.

Full Story

Fannie Mae Implements Modification Plan for Second Liens

Excerpts from Fannie’s Press Release - Tuesday, 9/21/10 6:12 PM:

“The Second Lien Modification Program (2MP), announced on September 21, 2010... is designed to work in tandem with the Home Affordable Modification Program (HAMP) to create a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans.”

“All Fannie Mae-approved servicers must participate in 2MP for all eligible Fannie Mae second lien mortgages, and are required to do so no later than January 1, 2011.”

So?!  What does a HAMP modification feature have to do with selling real estate?  Why concern ourselves with workout plans for second mortgages?  Good questions.

The answers lie in the way government works.  Government solutions usually have strings attached and the strings tend to wind in and around anything within reach.  In this instance the tentacles of control may hold a benefit to RE sales. To put this context let’s look at federal activity over the past 26 months:

Jul 2008	FDIC	Intervenes in IndyMac’s insolvency and  inherits Indy’s large portfolio of non- performing mortgages loans.
Aug 2008	FDIC	Introduces loan modification program “for  troubled Indymac borrowers who are  currently behind on their mortgage  payments.”
Oct 2008	Bush Admin	The Emergency Economic Stabilization  Act enacted in response to the sub-prime  mortgage crisis, TARP fund created.
Nov 2008	FDIC	“Mod in a Box” program announced,  based on the IndyMac loan modification  model.
Feb 2009	Obama Admin	Making Home Affordable program  (HAMP) announced, codifying the FDIC’s Mod in a Box model as mandatory for  mortgage servicers under EESA/TARP.
Mar 2009	GSEs	MI Companies delegate authority to  GSEs for approval of loan modifications  under HAMP.
May 2009	HUD	FHA implements Home Affordable  Modification Program.
Nov 2009	US Treasury	Home Affordable Foreclosure Alternatives  (HAFA) program announced, establishing  standard requirements for short sales  and deeds-in-lieu of foreclosure.
Nov 2009	GSEs	MI Companies directed to delegate short  sale approval authority to GSEs.
Sep 2010	Fannie	Second Lien Modification Program (2MP)  announced as enhancement to HAMP.

OK, so much for the history lesson.  What’s the point? 

Simply put – within the Bank-Bailout/HAMP/HAFA arena – one program affects another.  IndyMac’s insolvency leads to Mod in a Box.  Mod in a Box becomes HAMP.  HAMP leads to HAFA, MI delegation to GSEs, and now mandatory reductions of subordinate liens during mortgage modification. 

The US Treasury Department is the hammer and TARP is the anvil upon which financial institutions are drawn into mandatory concessions.  For better or for worse, that’s what is happening.

It doesn’t exist today, but recent history would seem to indicate that in the near future subordinate lienholders will be required to accept short payoffs.  HAFA already includes provision for payment of $3000 to subordinate lienholders.  What’s missing is a mechanism to require subordinate lienholders to accept short payoffs.   Coming soon...

Your thoughts? 

Email me at: croberts@pafirstsettlement.com

2MP News Release

2MP Announcement

BOA Rolling Out New Short Sale Approval Process

Bank of America Home Loans improves short sale process for homeowners and real estate professionals

As part of Bank of America Home Loans’ commitment to successful homeownership, our first priority is to keep owners in their homes through loan modifications or other remedies. Unfortunately, sometimes these solutions do not work and a “short sale” is deemed to be the best course for the homeowner. A short sale allows a borrower to sell the home for less than the total amount due on the mortgage loan secured by the home. It helps the borrower avoid foreclosure and reduces some of the lender’s loss by avoiding or minimizing foreclosure activities. The borrower does not receive any of the proceeds of the short sale.

High unemployment levels, declining home values and other factors facing some families have doubled short sales in the last year. The result: the slowing of an already time-consuming and intensive process in which participation from multiple parties is typically required.

We clearly recognize the need to improve the short sale process for both our customers and the real estate professionals who are critical to a successful transaction. In response to the rise in short sale volume, we have updated training, enhanced our technology and established a dedicated team of short sale professionals that is available to help customers and real estate professionals navigate the process.

We are also piloting a cooperative short sale program that includes proactive outreach to customers who have been unable qualify for a home retention solution, or have fallen out of a workout program, to measure their interest in a short sale. The property will be listed at market value, and Bank of America will work with the customer and agent throughout the marketing period. If an offer is received, we will be in a position to approve the sale within two weeks. This program is currently in a limited pilot stage, and we hope to expand it soon.

Bank of America has taken big steps to shorten response times and improve overall communication. We recently deployed a secure, password-protected internet portal called Equator (formerly known as REOTrans). Bank of America is the first to provide this around-the-clock platform for real estate professionals and homeowners to track the status of short sales. In real-time, homeowners, agents and bank representatives can see and exchange documents, track important dates and deadlines and significantly improve communication between all parties involved.

Below, we have provided some tips for agents and homeowners to help you better understand the short sale process and identify areas in which you can aid in advancing the process as well. In addition, we have included a link to a December 10 webinar sponsored by the National Association of REALTORS® in which Bank of America’s Dave Sunlin outlines the short sale process and recent enhancements.

Bank of America is committed to continually evaluating and improving our processes. As we pursue changes and improvements to ease the short sale process, we appreciate the support and patience of our customers and the real estate professionals we work with daily.

Tips for real estate professionals:

There are many things you can do to help minimize this lengthy process time:

• Advise clients to contact their servicer as early as possible
• Ensure all customer financials are in PDF format
• Help clients complete all documentation accurately and as soon as possible
• Make sure the purchase offer is a legitimate offer and fully executed
• Submit the best possible purchase offer at fair market value
• Provide listing information and comparables to support price

Frequent causes of delay to be aware of:

• A change of buyer or agent at any time may require process to revert to an earlier step; notify client’s servicer immediately if there is any change
• Investor/mortgage insurance approval is needed if the servicer is not fully delegated to approve the short sale
• Release on a second lien must be received prior to issuing an approval letter
• If customer has filed bankruptcy, the trustee must provide a court document that approves the sale of the property

View the December 10 National Association of REALTORS® webinar on short sales Opens in a new browser window..

The Federal Reserve Nixes Yield Spread Premiums

Monday the Federal Reserve announced new rules banning yield spread premiums (YSPs).

The new rules (under Regulation Z) prohibit payments to a lender or broker based on the loan’s interest rate, they do allow for compensation based on a fixed percentage of the loan amount.

Yield spread premiums enabled mortgage brokers and lenders to earn additional fee income as a result of charging borrowers above-market interest rates.

Advocacy groups point to yield spread premiums as among the factors leading to the sub-prime lending morass.  The Federal Reserve’s stated purpose for the rule change (under Regulation Z) “is is to protect consumers in the mortgage market from unfair or abusive lending practices that can arise from certain loan originator compensation practices. 


Links:
Federal Reserve Statement
Article - David Streitlfeld, New York Times
Final Rule

Selling Underwater: HAFA Nuts & Bolts

In a previous article I talked about the introduction of the new Home Affordable Foreclosure Alternatives (HAFA) program (see Selling Underwater – Short Sales under HAFA - 5/24/10).  In this article I want to cover HAFA from the process perspective – how it really works.

The core principal of HAFA is standardization.  Previously when confronted with a short sale the homeowners and agents had to contend with the mortgage servicer on a case-by-case basis under that servicer’s own terms and requirements.  Under HAFA the entire process is streamlined with a framework of standardized qualifications, documents, approval criteria and processing time frames.  HAFA lays out a step-by-step process for all the players to follow.

HAFA recognizes two short sale transactional scenarios:

1. A home that is under agreement of sale with a buyer in place (Contract);
2. A home being offered for sale (Listing). 

The process for the two scenarios is different.  HAFA’s principal focus is on up-front approval in which a homeowner is approved for short sale and enters into a Short Sale Agreement with the servicer at or prior to the time of listing.  I will cover those particulars in detail in my next article.  This article covers the Contract short sale process, where a short sale property is under contract with a buyer in place.  Under HAFA this scenario is referred to as an Alternative Request for Approval of Short Sale (Alternative RASS).

First, here is a summary of the elements of the Alternate RASS process broken into two primary steps:

Step One – Eligibility Requirements.  Does this situation qualify for HAFA?

• The borrower has qualified under the Home Affordable Modification Program (HAMP).
• The property is the borrower’s principal residence.
• The property is not vacant or condemned.  Exception: a borrower to be eligible for HAFA if the borrower provides evidence that he or she was required to relocate at least 100 miles from the mortgaged property to accept new employment or was transferred by an existing employer and has not purchased another home.
• 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 $729,750.
• The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.
• The borrower documents a financial hardship¹ and completes HAMP Hardship Affidavit and provides required documentation.

Tip: Under HAFA borrower’s total monthly mortgage payment is defined as: monthly mortgage principal and interest, RE taxes, homeowner’s insurance, flood insurance and homeowner’s association fees.

Step Two – Submit an Alternative Request for Short Sale Approval (Alternative RASS) to the servicer.  The Alternative RASS is a specific package of forms and documentation. 

The Alternative RASS requires the following documents:

• Alternative RASS (Program Terms and Conditions – Terms of Sale) to be completed and signed by Borrower (Seller)
• Copy of a signed listing agreement with a real estate broker (if applicable)
• Executed copy of the sales contract and all addenda
• Buyer’s documentation of funds or Buyer’s pre‐approval or commitment letter on letterhead from a lender
• Information about other liens secured by your home such as home‐equity loans
• Completed and signed Hardship Affidavit form (if applicable)                 

It is important to recognize significance of the first item under Step One: “The Borrower has qualified under HAMP.”  Six simple words – but behind them lies a potential mire of complexity. 

To qualify for HAMP means that a borrower has been approved for mortgage modification under the Home Affordable Modification Program.   Many stories have circulated and I’m sure you’ve heard some of them.  They usually go something like this: after asking for help, submitting and resubmitting documents, a distressed borrower is hung up in limbo for months waiting for their servicer to deliver on mortgage modification promises made under HAMP.  The stories are often emotional as homeowners struggle with bills piling up and mortgage default looming. In fairness, the nation’s mortgage servicers have been deluged with workout requests. As of April 2010, according to US Treasury & HUD, servicers have made 1.4 million modification offers, behind 4.2 million borrower solicitations.  That’s a lot of processing.   

Here’s the key - homeowners in distress need to begin the process with their servicer in advance of their short sale, the earlier the better. HAFA (short sale) may well be the needed solution, but the true first step is HAMP (mortgage modification) approval.  A homeowner is not required to accept the HAMP modification offer if one is made, but they do need to get HAMP qualified to take make use of the streamlining provisions under HAFA.

Look for the next article in this series on the Listing short sale approval process… coming soon.

________________________

¹ HAMP hardship conditions (one or more of the following required):

• Reduction in or loss of income that was supporting the mortgage;
• Change in household financial circumstances;
• Recent or upcoming increase in the monthly mortgage payment.
• Increase in other expenses.
• Lack of sufficient cash reserves to maintain payment on the mortgage and cover basic living expenses at the same time. Cash reserves include assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement and emergency accounts – generally equal to three times the borrower’s monthly debt payments).
• Excessive monthly debt payments and overextension with creditors, e.g., the borrower was required to use credit cards, a home equity loan, or other credit to make the mortgage payment.
• Other reasons for hardship detailed by the borrower.

HAFA News – Fannie & Freddie Sign On!

GSEs Fannie Mae and Freddie Mac released announcements on June 1, 2010 stating their adoption of the Home Affordable Foreclosure Alternatives Program (HAFA).  For an overview on HAFA see previous article: “Selling Underwater”.

Fannie Mae’s released a 22-page Announcement (SVC-2010-07) with details on their implementation.  

The following is a synopsis of the key points:

Implementation - All servicers must implement Fannie Mae’s HAFA for all conventional mortgage loans that are held in Fannie Mae’s portfolio.

Effective Date - Servicers are encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately; however, servicers are required to implement these policies and procedures no later than August 1, 2010.

Documents - Servicers must use the following documents: HAFA Short Sale Agreement, HAFA Request for Approval of Short Sale (RASS), HAFA Request for Short Sale Approval Without Short Sale Agreement (Alternative RASS), HAFA DIL Agreement.

Bankruptcy - A borrower in an active Chapter 7 or Chapter 13 bankruptcy case must be considered for a Fannie Mae HAFA short sale or DIL if requested by the borrower, borrower’s counsel, or bankruptcy trustee.

Foreclosure - A servicer must continue to pursue a pending foreclosure while evaluating a borrower’s eligibility for a Fannie Mae HAFA short sale or DIL, waiting for the timely return of the signed agreement and all supporting documentation, and for the duration of the agreement. The servicer must advise the borrower that the foreclosure proceedings will continue while the property is listed for sale.

• The servicer must suspend any foreclosure sale scheduled:
• During the term of a fully executed HAFA Short Sale Agreement (provided the borrower is complying with the terms of the agreement),
• Pending transfer of property ownership based on an approved sales contract (until the closing date stated in the approved sales contract), and
• Pending transfer of property ownership via a DIL provided the transfer occurs before the date specified in the HAFA DIL Agreement.

Valuation - As soon as a borrower is determined to be eligible for a Fannie Mae HAFA short sale or DIL and has demonstrated a willingness to participate, the servicer must take necessary steps to determine the market value of the property.  Fannie Mae will require a broker price opinion (BPO) based on an interior and exterior inspection of the property or, if licensing requirements in the state dictate use of an appraisal for these purposes.  

Approval Turnaround Time - The servicer will send to the borrower a HAFA Short Sale Agreement no later than 14 calendar days after the later to occur:

• The servicer’s determination that a borrower meets the basic eligibility criteria described in this Announcement and,
• Fannie Mae’s communication of the MANP to the servicer.

Listing Oversight - The servicer must actively oversee the sale of the mortgaged property by communicating with and providing instruction to the listing agent. At a minimum, the servicer’s duties and responsibilities are as follows:

1. Establish a list price that reflects current market conditions;
2. Review the listing agent’s marketing plan;
3. Obtain monthly feedback from the listing agent;
4. Obtain monthly geographical comparables from the listing agent;
5. Make adjustments to the list price as necessary;
6. Review each sales contract in detail;
7. Work with the title company to resolve any issues that may delay the closing;
8. Provide instructions to the title company;
9. Review the HUD-1 Settlement Statement for accuracy within 48 hours of closing; and 
10. Ensure the sales proceeds are received on a timely basis.

Allowable Transaction Costs – Allowable transaction costs typically include:

• Real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;
• Real estate taxes and other assessments prorated to the date of closing;
• Local and state transfer taxes and stamps;
• Title and settlement charges typically paid by the seller;
• Seller’s attorney fees for settlement services typically provided by a title or escrow company;        
• Wood-destroying pest inspections and treatment, when required by local law or custom;         
• Homeowners’ or condominium association fees that are past due, if applicable;
• Allowable costs include any amounts authorized by Fannie Mae.

Prohibited Costs - Fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must not be deducted from the sales proceeds or charged to the borrower. Additionally, the servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan.

Offer Receipt and Response - To enable the servicer to evaluate a bona fide sales contract, the borrower must provide the details of the sales contract using the RASS or the Alternative RASS, as applicable. The listing agent and borrower must submit the complete and executed RASS or Alternative RASS to the servicer along with supporting documentation within 3 business days after receipt of a fully executed sales contract. 


The borrower must provide the following supporting documentation:

• Executed sales contract and all addenda;
• Listing agreement, if any, if not previously provided;
• All information readily available to the borrower regarding the status of other liens on the property; and 
• The buyer’s documentation of funds or pre-approval or commitment letter on letterhead from a mortgage lender indicating that the buyer is approved for financing sufficient to complete the purchase of the property. The only acceptable condition of approval is the completion of an appraisal reflecting a property value equal to or greater than the purchase price stated in the sales contract or a satisfactory inspection of the subject property.

The servicer must respond to the borrower within 10 business days of receipt of a completed request and required documentation.


Servicer response must indicate acceptance or rejection of or a counter to the offer.

Closing Date - Accepted offers must close no later than 60 days after the contract execution or approval by the servicer or Fannie Mae, whichever occurs later. The Servicer may not require the transaction to close in less than 45 days of the dated sales contract without the consent of the borrower.

PMI Insurer Approval - Fannie Mae is working with mortgage insurers to obtain delegations of authority so that servicers can more efficiently process Fannie Mae HAFA short sale and DIL requests without the need to obtain mortgage insurer approval on individual mortgage loans.

Borrower Incentive - The borrower will be entitled to an incentive payment of $3,000 to assist with relocation expenses following successful completion of a HAFA short sale or a DIL.

Coming soon… Part Two in series “Selling Underwater” on how to process contracts and listings under HAFA.

Craig Roberts, President of Pennsylvania First Settlement Services LP, is a Certified Land Title Professional (CLTP), past-President of the Pennsylvania Land Title Association, and is licensed as a title agent and real estate broker in the Commonwealth of Pennsylvania.