Understanding the New Home Affordable Foreclosure Alternatives Program (HAFA)

February 15, 2010

On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA), which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP). Under HAFA, a borrower (the current owner) may be able to avoid foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL).

HAFA is designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure by improving the process. Specifically, HAFA will:

• Complement HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Use borrower financial and hardship information already collected in connection with consideration of a loan modification under HAMP.
• Allow borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibit the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
• Require borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
• Use standard processes, documents, and timeframes/deadlines.
• Provide financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis; up to 3% of the unpaid principal balance of each subordinate loan).

HAFA is a complex program with 43 pages of guidelines and forms. To help everyone better understand the process, below are some frequently asked questions that address the basics. For more details on HAFA, visit www.realtor.org/shortsales for links to the guidance, many additional FAQs, and much more information about short sales.

What is HAFA?
Initially announced on May 14, 2009, with guidance and standard forms issued on November 30, 2009, the program will help owners (referred to below as borrowers) who are unable to retain their home under the Home Affordable Modification Program (HAMP). A borrower (the current owner) may be able to avoid a foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL) under HAFA. The guidance and forms released on November 30 do not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. Those enterprises will issue their own HAFA guidance and forms.

Who is eligible for HAFA?
The borrower must meet the basic eligibility criteria for HAMP:
• Principal residence.
• First lien originated before 2009.
• Mortgage delinquent or default is reasonably foreseeable.
• Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
• Borrower’s total monthly payment exceeds 31% of gross income.

How is the program being implemented?
Supplemental Directive 09-09 (November 30, 2009) gives servicers guidance for carrying out the program. All servicers participating in HAMP must also implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions, and borrower motivation and cooperation.

A short sale agreement (SSA) will be sent by the servicer to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply. After the borrower contracts to sell the property, the borrower submits a “request for approval of short sale” (RASS) to the servicer within 3 business days for approval. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The Servicer must still consider the borrower for a loan modification.

What are the steps for evaluating a loan to see if it is a candidate for HAFA?
1. Borrower solicitation and response.
2. Assess expected recovery through foreclosure and disposition compared to a HAFA short sale or DIF.
3. Use of borrower financial information from HAMP. (May require updates or documentation.)
4. Property valuation.
5. Review of title.
6. Borrower notice if short sale or DIL not available (to borrowers that have expressed interest in HAFA).

What are the HAFA rules regarding real estate commissions?
The guidance states that a servicer may not require a reduction in the real estate commission below the amount stated in the SSA. The SSA states that the servicer will pay the commission as stated in the listing agreement, up to 6%. If the servicer has retained a vendor to assist the listing broker, the vendor must be paid a specified amount from the commission. Neither buyers not sellers may earn a commission in connection with the short sale, even if they are licensed real estate brokers or agents. They may not have any side deals to receive commission indirectly.

What else should I know?
• The deal must be “arms length.” Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.
• The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, the tax may not apply. Forgiven debt will not be taxed if the amount of forgiven debt does not exceed the debt that was used to acquire, construct, or rehabilitate a principal residence. Check with a tax advisor.
• The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment. There will be a negative effect on credit scores.
• Buyers may not reconvey the property within 90 days after closing.

When does the program end?
Short Sale Agreements must be executed and returned to the servicer no later than December 31, 2012

Jeff Lischer is the Managing Director for Regulatory Policy, NAR. For more information, please visit www.realtor.org/shortsales.

Source: RISMedia

Popularity: 2% [?]

Written by djumper · Filed Under Real Estate Blog 

Reuters: Bernanke Says Banks Stabilized, But Lending Still Weak

December 16, 2009

Federal Reserve Chairman Ben Bernanke said on Wednesday that U.S. banks have been stabilized but lending remains too weak to support a healthy recovery.

“We have told the banks very clearly that we want them to make loans to creditworthy borrowers, where there are borrowers who can repay the loans,” Bernanke said in an interview with Time magazine.

After a “near-death experience,” banks are wary of taking on the kind of risk that led to the crisis although they have rebuilt capital, he said.

The Fed has taken steps to loosen markets through programs that allow investors to invest directly in various forms of credit, such as auto loans and credit card loans.

But further steps are needed to pull the sector out of the “convalescent stage,” he said.

“We need to have extensive reform in the private sector, in the public sector, to eliminate these risks in the future,” he said.

The Fed, along with the administration and Congress, still has a lot to do to get the economy back to stability and start creating jobs again, he said.

“Even though the recession may be technically over, in a sense that the economy is growing, it’s going to feel like a recession for some time, because unemployment remains very high, about 10 percent,” he said.

Congress and the administration needs to develop “a credible medium term interest strategy for fiscal policy,” he said.

Time magazine named Bernanke its “Person of the Year” on Wednesday, a day before a U.S. Senate committee is due to vote on his renomination for Fed chairman.

PiggyPresident Barack Obama also this week urged banks to lend more to assist the U.S. economic recovery.

Bernanke said the Fed had never proposed that it become a regulator for the entire financial system, although he argued that no other agency in Washington has its expertise.

“We have a wide range of expertise that makes us the natural supervisor for these large complex firms,” he said.

Banks have yet to broadly understand the need for more restraint on pay after they were bailed out with taxpayer money, he said.

The Fed instituted policies “which we’ll be enforcing on banks” that require them to structure pay in ways that align it with performance and discourage excessive risk taking, he said.

“We are going to be looking at that as part of our supervision of banks,” he said.

The central bank’s policy-setting Federal Open Market Committee will conclude a two-day meeting later Wednesday with a statement expected at about 2.15 p.m.

Source: Reuters

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

30-Year Fixed Mortgage Rates Stay Relatively Steady

November 4, 2009

The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages decreased one basis point last week to 4.86%, down from 4.87% the week prior, according to the Zillow Mortgage Rate Monitor, compiled by real estate website Zillow.com. Rates for 15-year fixed mortgages fell one basis point to 4.31% from 4.32%, and 5-1 adjustable rate mortgages fell one basis point to 3.79%, from 3.80% the week prior.

The volume of mortgage requests last week fell 9.5% from the prior week. Of last week’s requests, 43% were for refinance loans, 54% were for purchase loans and 2% were for home equity loans. The prior week, 45% of requests were for refinance loans, 53% were for purchase loans and 2% were for home equity loans.Mortgage

Rates for 30-year fixed purchase mortgages fell, with the average rate on Zillow Mortgage Marketplace at 4.79%. Thirty-year fixed mortgage rates varied by state. Texas mortgage rates and Connecticut mortgage rates decreased the most, from 4.84% to 4.81% in Texas and from 4.96% to 4.94% in Connecticut. New York mortgage rates (5.03%) and New Jersey mortgage rates (5.06%) were the highest in the country, while Texas mortgage rates (4.81%), and California mortgage rates (4.83%) were the lowest.

For more information, visit www.Zillow.com.
Read more here.

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

Mortgage Modification Program Hits Goal Ahead of Schedule

October 12, 2009

Almost one month ahead of a November 1, 2009 benchmark set earlier this year, the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (HUD) announced a new milestone of more than 500,000 trial loan modifications in progress under the Making Home Affordable program.Scale 4

The goal of 500,000 trial loan modifications by November 1 initially set in July, pushed servicers to ramp up program implementation and sustain a faster pace of modifications; trial modifications are now being issued at a faster rate than new homeowners are becoming eligible. Still, the Administration believes that more can and should be done to assist struggling homeowners and to stabilize the housing market. As part of a continued effort to improve program performance, senior Treasury and HUD officials held the next in a series of meetings with servicers recently, with discussion focused on improving servicer efficiency and responsiveness to borrowers during the modification process.

Additionally, Treasury and HUD released the next Monthly MHA Program Report, which tracks servicer performance through the month of September- ending September 30, 2009.

For more information, visit www.treas.gov.

Source: RISMedia

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

Foreclosures Move Up Market

October 12, 2009

Recently, there’s been a fair bit of anecdotal discussion around the assertion that foreclosures, once a problem just for the sub-prime segment of mortgages, have been moving up-market. That is, people are suggesting that we’re seeing more foreclosures in the mid- to high-end segments of the market.Foreclosure1

Turns out, there’s a lot of truth to this idea. In 2006, at the height of the real estate bubble, homes in the bottom one-third of home values made up almost 55% of all foreclosures. Homes in the middle one-third of home values made up almost 29% of foreclosures and homes in the top one-third represented just 16% of foreclosures. In the accompanying chart, you can see the dramatic changes in the distribution of home values among foreclosed homes. In July 2009, the bottom one-third made up 35% of foreclosures, compared to 35% and 30% for the middle and top one-thirds, respectively. Those are shocking numbers: Thirty percent of foreclosures are homes in the top tier of local home values. That means that top-tier homes make up almost twice the proportion of foreclosures as they did just three years ago.

High delinquency rates in Prime, Alt-A and Option ARM mortgage products and declining cure rates (the rate at which borrowers resolve their delinquency status) are resulting in many more foreclosures among borrowers outside of the sub-prime mortgage market (and in higher priced segments of the market). Amherst Securities Group recently provided some data showing the higher delinquency rates for these products and the strong relationship between increased negative equity and decreased probability of resolving delinquency status (see their Exhibit 9, which shows, of borrowers who are 30 days delinquent, the percentage who become 60 days delinquent by their current loan-to-value ratios, where values greater than 100 indicate negative equity). As of the end of the second quarter of this year, Zillow estimated that 23% of single-family homes with mortgages are underwater on their mortgages, so expect cure rates to stay lower than they would be otherwise.

Methodology
Looking at the distribution of foreclosures by home value can be significantly distorted by the variances in home values across the country. For example, it might appear that high-end homes as a percentage of all foreclosures is quite high nationally, but the reality is simply that areas with lots of foreclosures happen to be areas where home prices are higher. In order to better isolate the distribution of foreclosures by price segment without introducing the geographic variability of home prices, we have examined home prices while controlling for the local price level of all homes.

Specifically, from all homes in the Zillow database with valuations (~70 million), Zillow computed the ratio between the current house value and the current level of the Zillow Home Value Index for the county in which the home is located. We then computed the 33rd and 66th percentiles of this ratio and assigned all homes to three price tiers: bottom (homes where the ratio was less than the 33rd percentile), middle (homes where the ratio was between the 33rd and 66th percentiles) and top (homes where the ratio was greater than the 66th percentile). We then extracted all foreclosures since 2000 and computed, by month, the percentage of foreclosures in the month represented by homes in each price tier.

Stan Humphries is the chief economist for Zillow.com.

For more information, visit www.zillow.com.

Source: RISMedia

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

FHA Confusion Surrounds Mortgage Finance Regulation Change

October 8, 2009

As new housing finance regulations take effect and even more are set for the beginning of 2010, a number of questions have arisen on the impact to Federal Housing Administration (FHA)-insured loans.

A bill that calls for an increase to the down payment requirement for FHA loans from 3.5% to 5% would also prohibit borrowers from including closing costs in the principal of the mortgage.

But, is this provision actually a practice already in place?Mortgage

Many originators have told HousingWire they’ve operated for the last year under a directive from the Department and Housing and Urban Development (HUD) prohibiting the practice.

According to Department of Housing and Urban Development Mortgagee Letter 2008-23, dated Sept. 5, 2008, the Housing and Economic Recovery Act of 2008 amended the National Housing Act to eliminate “down payment simplification” — the variable loan-to-value (LTV) limits that were based on the combination of the property value and the average closing costs of the state where the property is located — federal housing commissioner Brian Montgomery wrote.

“Closing costs may not be used to help meet the minimum 3.5% down payment requirement. Closing costs are not considered in the mortgage amount/down payment calculation for purchase money mortgages,” Montgomery wrote.

A spokesperson for the bill’s author, Rep. Scott Garrett (R-NJ), said the changes brought by the Housing and Economic Recovery Act of 2008 prohibits certain sources of funds for closing costs (like seller-funded closing costs), not stop the financing of closing costs into FHA loans. The new bill would insert language that would codify the prohibition, the spokesperson said.

But Garrett’s bill amends language in a different subsection than the section changed by the Housing and Economic Recovery Act of 2008, and it is unclear how the legislation would clear up what lenders are telling HousingWire is a confusing situation.

While Garrett’s proposal is still a bill and not law, changes to the Truth in Lending Act (TILA) that put restrictions on prepayment penalties and require escrow accounts on higher-priced loans, among other things, went into effect this month.

In a panel discussion on the TILA changes at the CRA & Fair Lending Colloquium in New Orleans this week, the topic of prepayment penalties came up and a panelist brought up the question that if FHA interest penalties can be considered prepayment penalties, is FHA is in violation of TILA? The panel didn’t resolve the question, further highlighting the confusion felt by the industry.

Source: HousingWire.com

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

Refinancing Your Mortgage – Is It The Right Choice For You?

September 17, 2009

Mortgage refinancing is an option for many homebuyers who are paying interest rates 2-3% or higher than what they can find today, or who need additional cash. Were you a first time homebuyer or you had poor credit the last time you obtained a loan? Now you are on your feet and make a salary that could help you receive the best interest rates. Possibly you are looking to refinance your mortgage so you can free some funds for a new car or for educational purposes. There are many options available when you refinance.

Before you decide if refinancing is right for you, look at your current financial situation. Do you have an adjustable rate loan or a fixed rate loan? How long do you plan to be in your home after you obtain your new mortgage? What is your ultimate goal? Most people want to refinance so they can access more money now. Refinancing is a great solution, but is a refinance of your loan the right solution for you?

The first step is making contact with you lender, and be aware how much your monthly payment is now. It is also helpful to find out how much you have paid of your mortgage towards principal. Since you will refinance the amount left on the mortgage principal, and not refinance the original mortgage amount, it is really important to know how much principal is left. If you plan to stay in your home for a length of time and still have a sizeable principal left on your loan, then a mortgage refinance may be a good option for you if interest rates are lower than when you obtained your last loan.

Just as with most conventional loans, refinancing offers similar options of adjustable and fixed rate mortgages and anywhere from 10-40 year loans. Be sure to review with your mortgage lender the reasons you are interested in refinancing; do you need to refinance to obtain cash for home improvements or for a new car purchase? These are important factors to make your lender aware of as you are deciding how to refinance your mortgage.

Mortgage

Another factor that determines whether borrowers refinance is interest rates. Current mortgage interest rates can rise and this often scares refinance borrowers who have ARMs because they are afraid the adjustable rates will rise after they refinance. It is difficult to assess what will happen to the adjustable refinance mortgage interest rates over the next few years. If you refinance into a fixed rate mortgage during a high interest rate period, then when interest rates go back down, you are stuck with a high fixed rate mortgage and another decision about whether or not to refinance again. Of course the only sure-fire way of knowing if you should apply for a refinancing is to assess your reasons for the refinance and how it will affect you in the future.

Source: Real Estate Global Network

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

IRS Issues Rules to Ease Mortgage Refinancing

September 16, 2009

WASHINGTON – The IRS issued new rules Tuesday designed to make it easier to refinance some commercial real estate loans in an effort to curb the number of defaults.

The rules would allow commercial loans that are part of investment pools known as Real Estate Mortgage Investment Conduits, orREMICs, to be refinanced without triggering tax penalties for investors.

The investment pools were designed to encourage mortgage-backed securities by offering tax benefits not typically available through other investment vehicles. However, under the old rules, investors could have lost those benefits if loans in the portfolio were restructured.

The new regulations come as Wall Street braces for a wave of defaults on commercial real estate loans. More than 90 U.S. banks have already failed this year. Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate.

“These changes will affect lenders, borrowers, servicers, and sponsors of securitizations of mortgages in REMICs,” the new regulation says.

dollar

The changes will not affect commercial mortgage loans held by investment trusts. However, the Internal Revenue Service said Tuesday it is soliciting comments on possibly expanding the changes to other investment vehicles.

Concept Capital, a New York-based institutional broker, welcomed the changes but cautioned that they will not solve the commercial real estate crisis alone.

“We have all heard stories about commercial real estate loans that are performing now but cannot be refinanced because of the tax rules,” Concept Capital’s Washington Research Group said in a report issued after the regulations were released. “The IRS attempted to ease the tax code problem for these modifications.”

But, the report said, “We still question if there is enough financing available to deal with the wave of commercial real estate loans that must be refinanced by 2012.”

Source: Yahoo! News

Popularity: 1% [?]

Written by djumper · Filed Under Real Estate Blog 

Next Page »