Here is the conclusion to the new HAFA regulations that goes into effect on 4/5/2010. HAFA prohibits the servicers from requiring the consumer to carry on any future liability for any uncollected debt arising from the short sale of a consumers property (NO cash contribution, NO promissory note or NO deficiency judgment is allowed). HAFA also makes the servicers use a standard process, documents, timeframes and deadlines. The regulation also provides financial incentives that go like this: $1500 will be given for borrower relocation assistance, $1000 to cover the administrative and processing costs to the servicer, $1000 to the investors for giving any subordinate lien holders up to $3000 (in other words the servicer is to give the 2nd mortgage holder up to $3000 to forgive their note on the property) the government will pay the servicer on a one dollar for three dollar matching basis. Here is the big one: The Home Affordable Foreclosure Alternatives Program requires all servicers who are, or were, participating in HAMP to implement HAFA in accordance with their own guidelines and investor policy. It can include language for potential loss, local markets, timing of pending foreclosures, and borrower cooperation and motivation. What is the bottom line? This program is drastically changing the way that servicers are allowed to disperse property. The servicer must try to keep the borrower in the property. If that can’t be done and all options have been exhausted then a Short Sale is the next step, where the servicer must take on the liability of the loss. Foreclosure is the LAST resort. The program is in effect until 12/31/12. If you are a real estate agent, you had better be ready for the onslaught of Short Sales. In my next blog I will let you know where you can get help to close your Short Sales faster.

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I have been asked a number of times in the last two weeks what HAFA is, what are the new guidelines, and how will the legislation affect the way that we buy and sell real estate? The acronym stands for Home Affordable Foreclosure Alternatives Program. It is slated to be put into effect on April 5th 2010. It is a mammoth 43 page document that details all of the new guidelines that banks, who took TARP money are going to be required to follow. I am going to give an overview of the changes. First, it will work in conjunction with HAMP (Home Affordable Modification Program) by working with the existing HAMP financial hardship documentation already collected. Second, it also gives a viable alternative to consumers that are eligible for HAMP but can’t afford the modification. Third, it allows borrowers to receive preapproved short sale terms before the property is listed. Fourth, it also prohibits the servicer from lowering a Realtors commission that is agreed on the listing agreement, up to 6%. Fifth, it releases the borrower from any liability by the servicer. NO cash contribution, deficiency judgment, or promissory note is allowed. I will conclude my examination of the new HAFA guidelines in the next weeks Blog.

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The Department of Housing and Urban Development or HUD has launched a new program to help with job creation through a series of grants. Armed with 150 million dollars provided by Congress the entity that is overseeing the project is the Office of Sustainable Housing and Communities or OHSC. According to HUD, W-2 employed households are still feeling financially pressured. According the Department of Labor, January saw the first unemployment decline in over a year to 9.7%. While it is a decrease we are still close to the historic highs. In addition, HUD has determined that the average household spends half of its monthly wage on housing and transportation. What this all means is the OSHC has been set up to help the average homeowner. The new office will provide grants to metropolitan planning organizations, state governments and non-profit organizations to improve access to affordable housing. It will also invest in energy efficient homes and buildings and put emphasis on energy efficient retrofitting for new home purchases. What does all of this mean? It means that President Obama is trying to make good on his promise to improve our economy through housing subsidies. Whether this plan will have any significant impact to the average home owner remains to be seen.

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As promised I want to explain how this new “temporary” HUD rule, of eliminating the 90 day flip restriction to get FHA mortgage insurance, will help with REO’s, Short sales, and conventional financing. First, investors will be able to buy a dilapidated home, fix it up, and sell it in a much shorter time frame. Right now the average time to sell a home that has been purchased by an investor after it has been rehabbed is 6 months. The main reason for this is HUD’s old anti-flipping rule which said an investor could not market a property until the 91st day of ownership. Now they can start to market the home as soon as they have taken title to the property. Why is this beneficial to the buyer/investor? It decreases the amount of time that an investor’s money is out on one property so the investor can invest in more properties per year which will decrease the supply of REO’s and Short Sales. This means that demand will go up thus increasing values. This will eliminate the glut of inventory the banks have on their books which will put the banks in a position to start lending money on homes again. This will enable Banks to satisfy their appetite with a mix of FHA and conventional products. I know that my opinion will be met with some skepticism, but this very same thing happened in the 90’s after the government bailed out the Savings and loans industry.

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The Department of Housing and Urban Development or HUD has had a policy for years that stated no new home purchases are eligible for FHA insurance until a 90 day waiting period had expired (from the closing date). HUD has since adopted a “temporary” policy that allows new purchases of homes to take place within the 90 day time frame. According to HUD Secretary Shaun Donavan, “this temporary policy will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration’s commitment to addressing foreclosure.” At issue is the vacancy that occurs when a home is foreclosed. President Obama’s aim is to help the urban blight that is taking place in many cities due to the increase of empty houses. By changing its stance, HUD has actually done a great service to the potential homeowner and the neighborhood as well. The only snag may be with the large banks (B of A, Wells Fargo, Citi, etc) that aren’t under any mandate to accept the new change. But it seems unlikely that the new change will not be adopted by the banks because FHA is insuring the deals. Next week I will tackle how this change will affect REO sales, Short Sales, as well as conventional financing.

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Happy New Year to all of you, I wish I was starting the first blog of the year with better news. I sat in on a panel of mortgage industry experts earlier this week and we all came up with the same conclusion. The U.S. government and large banks (B of A, Wells Fargo, Chase etc) are trying to run brokers and small bankers out of the mortgage business. HUD’s proposed a new rule for Full Eagle mortgage lenders net worth requirement is set to increase from $250,000 to 2.5 million. This will effectively eliminate all but the largest mortgage companies. In addition, HUD wants to eliminate the Mini Eagle or correspondent program all together. This will make the lender responsible for approving correspondents, brokers, or licensees. What this does is effectively run the broker and small banker out of the FHA market. Why? Supply and demand. The large Banks will get to choose who they do business with. Who will they choose? A broker network where they have to give up a portion of their profit to the brokers or their in house branches where they keep all of the profit. My bet is the latter. What will this do to the consumer who wants an FHA loan? It will force him/her to accept the fees, points and processing time that is given by these few lenders. In effect a monopoly will be achieved and it will drive brokers from the market and cease all real competition. I am a firm believer in survival of the fittest but I also believe in consumer rights. If HUD’s proposal does get passed then the only loser will be (as usual) the little guy. I recommend you email your congressman or President Obama and let them know that this proposal cannot be passed.

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On October 14th, legendary UCLA basketball coach, John Wooden celebrated his 99th birthday. He is an extraordinary man! In the rough economic times that we live in I thought it would be prudent to give you the keys to Wooden’s success. He speaks of them as his “12 Lessons in Leadership”. The beautiful thing about his ideas is that they are all free and all still applicable in business today. Take a look and see if you can use any of his Lessons to generate business.

1. Good values attract good people.
2. Love is the most powerful four-letter word.
3. Call yourself a teacher.
4. Emotion is your enemy.
5. It takes 10 hands to make a basket.
6. Little things make big things happen.
7. Make each day your masterpiece.
8. The carrot is mightier than a stick.
9. Make greatness attainable by ALL.
10. Seek significant change.
11. Don’t look at the scoreboard.
12. Adversity is your asset.

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I was asked yesterday what a deed in lieu of foreclosure was and is it a good alternative to a short sale? A deed in lieu of foreclosure is where a homeowner contacts his/her respective mortgage company and essentially deeds the house back to the mortgage company before the mortgage company forecloses due to non payment. A short sale is when a homeowner finds out what the market price is for his/her house, usually with the help of a realtor, and if the value of the home is less than what is owed they try to sale the home on a “short” of value “sale” or short sale. The lender that is carrying the paper has to agree once an offer comes in which usually takes about 2-4 months. Which one is better? For times sake it is the Deed in Lieu of foreclosure. But for liability sake it is a Short Sale. When a lender agrees to a short sale they almost never go after the homeowner for the deficiency or loss incurred by the lending institution. With a deed in lieu, the homeowner opens themselves up to a possible deficiency judgment that forces the homeowner to take the left over debt with them and pay it off over time. President Obama is supposed to introduce legislation that will make it impossible to get deficiency judgments against homeowners who short sale their properties.

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With the advent of the Internet, applying for a mortgage has become a simpler process. There are various online mortgage lenders who offer facilities like affordable fees, prompt response and opportunity to furnish your financial details online.

There are multiple benefits of applying for an online mortgage. However, there are some downsides of requesting for a mortgage online as well. You must be leery about these shortcomings. Before requesting for a loan, you must check the background of the lender. You might also face some problems which you would not have faced if you dealt directly with the lender. The five tips given below would help you successfully apply for a mortgage online:

Utilize the search engines to find online mortgage lenders

Search engines like Yahoo!, Google or MSN work as outstanding resources to find online mortgage lenders. Just input the keyphrase “online mortgage” and you would come across a variety of reputable lenders like LendingTree, Ditech, E-loan, Wachovia, Countrywide and Bank of America. Various conventional mortgage lenders also provide the facility to apply and qualify for mortgages online.

Utilize other sources to get your online mortgage lender

The Internet is not the only source to locate online mortgage lenders. You can also find them on newspaper advertisements, magazines, e-mails and television commercials. The bank or credit union in your area can also help you with online mortgage application facilities. This helps you since you already know their past performances.

Perform extra research on online mortgage lenders

If you’re keen to work with a lender that you’re not acquainted to, you must perform additional research prior to sending your application. Be diligent in your approach. You must stay away from predatory lenders. They often use ploys like bait and switch and teaser rates to attract consumers. Always remember to go through the fine print.

Prepare with your financial details

When you’ve made a decision on the lender that you would work with, make sure that you’re ready with all your financial details. The online lenders would ask for similar details that you would have furnished to a traditional lender. These include your income, your debt, your investment and savings. If your source of income is unstable, you must mention it too.

Fill out the online application
As soon as you have all the details ready, the following step is to fill out the online application form. The process differs from one website to another. Most of the time, it would just require 1-2 minutes. Websites like Ditech.com and Lendingtree.com would receive your details and forward it to various lenders. As a result, you can receive multiple rate quotes from the lenders. Other websites would have somebody talk to you to evaluate your loan options. They can also e-mail you the mortgage rate quotes from several lenders.

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Let’s talk about short sales. The definition of a short sale is to sell a home short of what is owed to a lending institution thereby making them lose money. Short sales are used when a home owner decides that their property is no longer worth what they paid for and they don’t want to go into foreclosure with their lender. The homeowner will list their property with a real estate agent who, upon receiving an offer, negotiates with the lender to get them to accept a deficiency on their loan. As you can imagine lenders are not fond of losing money so they fight with the agent and homeowner to not accept the negotiated price. It is up to the agent to prove the deficient value and up to the homeowner to show that they can no longer make the payment. This process is a lengthy one and can take up to 6 months, even more in certain situations. But this is a far better alternative than foreclosure for all parties concerned. The homeowner gets to stay in the house, sometimes without payment, the agent makes a commission, and the lender gets the property back damage free. President Obama, HUD, FNMA, FHLMC, and most servicing company believe that this is a WIN/WIN for all concerned. So why is it this not the preferred method for upside homeowners to dispose of their properties? Simple, most lenders are stuck in the old REO (real estate owned) days where the homeowner is foreclosed on and physically removed from the property by law enforcement. I will compare the two methods of home transfer, REO vs. Short Sale, next week.

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