Sell The Right Way

New Short Sale Rules May Help Sellers

Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government's Home Affordable Foreclosure Alternatives (HAFA) program.

Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed -- have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.

HAFA establishes streamlined short-sale rules and provides incentives for borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short-sale process.

"The streamlined short-sales process will definitely help homeowners," says David Liniger, Re/Max International chairman and co-founder.

Before HAFA, homeowners often listed their home for sale without an idea of what the lender would accept.

"A lot of sellers and their Realtors have not been able to sort out the problems with short sales and have given up on the process because, even after sending in the correct paperwork, they have sometimes waited three or four months for their lender to respond," Liniger says.

Under HAFA, borrowers receive pre-approved short-sale terms from the lender before putting the home on the market.

Lisa Matykiewicz, a Realtor and certified distressed property expert in Gilbert, Ariz., says the updated short-sale rules establish an easy-to-understand process with defined steps that "make it easier for everyone to understand."

To be eligible for HAFA, homeowners must first apply for a loan modification through HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan-modification period qualify for HAFA.Eligibility requirements
The HAFA guidelines apply to lenders that voluntarily participate in the Home Affordable Modification Program (HAMP). The Department of Housing and Urban Development says more than 100 servicers have signed up to participate in HAMP, covering more than 89% of mortgage debt outstanding in the country.

Other HAFA requirements include:

Property is principal residence.
Mortgage originated before Jan. 1, 2009.
Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
Borrower is delinquent or default is foreseeable.
Homeowner demonstrates hardship.
Borrower's total monthly housing payment exceeds 31% of gross income.
Unpaid principal does not exceed $729,750.

According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender's short-sale agreement.

"I think it's great that the lenders in this program have to offer a short sale before going to foreclosure," Matykiewicz says.

When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers' mortgage pre-approval and the status of negotiations with other lien holders on the seller's property.

Finally, lenders must approve or deny the contract within 10 days.

HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.

Other incentives
In the past, short sales were especially difficult for homeowners with more than one loan on their home, since the home sale typically repaid only the first mortgage. HAFA's financial incentives include a payment of up to $3,000 for second mortgage holders.

Other HAFA financial incentives include $1,000 to loan servicers to cover administrative fees, up to $1,000 for mortgage investors who agree to share short-sale proceeds with second lien holders and $1,500 to the homeowners for relocation."Second trust lien holders are often owed five or 10 times that $3,000 payment," Liniger says. "But if the property goes to foreclosure, the second trust holder is not likely to get any money at all. This at least guarantees they get something."

"The moving expense allocation acts as an incentive for them to stay in the property until the short sale goes through," Liniger says. "Owner-occupied properties are usually in better condition than vacant homes."

Fannie Mae Offers Spur to Avoid Foreclosure

Fannie Mae will make it easier for some struggling homeowners to buy houses in the future if they avoid foreclosure in the present.

Under rules released this month that will take effect in July, some troubled borrowers who give up their homes by voluntarily transferring ownership through a "deed in lieu of foreclosure" or by completing a short sale, where a home is sold for less than the amount owed, will be eligible in two years to apply for a new mortgage backed by Fannie.

Currently, borrowers who complete a deed-in-lieu of foreclosure must wait four years before they can take out a loan that Fannie is willing to purchase.

Bloomberg News

Foreclosed home in Las Vegas.

The new policies from Fannie, a government-backed mortgage-finance company that together with Freddie Mac backs about half of the U.S. mortgage market, don't relax waiting periods for borrowers who go through foreclosure.

In 2008, Fannie lengthened that waiting period to five years from four.

To quality for the reduced waiting period, most borrowers will need to make a down payment of at least 20%, although borrowers with extenuating circumstances, such as a job loss, will be required to put down just 10%.

Even if waiting periods are shortened, many borrowers may be unlikely to repair their credit that quickly in order to get a loan in the first place. Foreclosures and short sales generally have the same effect on a borrower's credit score and can stay on a credit report for up to seven years.

The new rules are designed to make foreclosure alternatives more attractive to borrowers at a time when the Obama administration is ramping up its effort to encourage banks to consider alternatives such as short sales. That program sets pre-approved terms for short sales and offers financial incentives to borrowers and lenders to complete such sales.

Freddie Mac requires borrowers to wait five years after a foreclosure and four years after a short sale or deed-in-lieu.

Those periods can fall to three years for a foreclosure or two years for a short sale when borrowers show extenuating circumstances.

Officials at the Federal Housing Administration, the government mortgage insurer, say they are considering changes to their rules, which require borrowers with a foreclosure to wait at least three years before becoming eligible for an FHA-backed loan.

"We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own ... and now deserve the right to re-enter the housing-finance system," said FHA Commissioner David Stevens.

But some worry that policies enabling defaulted borrowers to more quickly resume homeownership could encourage more people to default.

"We don't want to say that there's a 'get out of jail' card during recessions to walk away from your house," Mr. Stevens said.

In December, the FHA unveiled rules for borrowers who completed a short sale.

Those who have missed payments prior to completing a short sale or who didn't face a hardship and simply took advantage of declining market conditions to buy a new home must wait three years.

Obama Administration Housing Program Offers Homeowners Huge Loan Reductions

Sympathy keeps pouring out of the Obama administration for troubled homeowners that owe more than the current value of their homes. Not a government to tolerate the unfairness of financial distress, it has announced another housing program for under-water homeowners.

Taking a $14 billion chunk of the existing $75 billion foreclosure-prevention program, the new program asks that banks and lenders reduce the amount that homeowners owe on their loans and offer them new loans. The new loans will be backed by the Federal Housing Administration.

In exchange for slashing the debt owed by the borrowers and participating in the administration's existing foreclosure prevention program, the lenders will receipt incentive payments from the government.

The plan also includes three to six months of temporary aid for borrowers who have lost their jobs. There will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.

Will this, the latest and greatest government housing rescue program really work? Well, so far all the prior Obama administration housing rescue plans have been dismal failures. Personally, I don't see this current plan making a significant difference.

In my 10-1-08 post entitled I stated: "For the government to come in with this huge bail-out now, would just prolong the housing decline. I'd rather see the government stand aside and let the market forces determine the true area average home selling prices."

"For those who think a government intervention is the only way out, I say do it without direct taxpayer money. The undisputed key to this recovery is housing. If the government truly wants to ignite a fire under the housing market, I personally would propose a very simplistic approach that would have immediate results."

"The government should pass a bill that allows any home purchaser, owner-occupied or investor buyer, who buys a residential property within the next two years and holds that property for a minimum of three years (and a maximum of ten) to be free of federal capital gains taxes upon selling the property. The potential, tax-free profits on my idea would be a huge incentive for investors to jump back into the residential housing market. This increased demand would clear the built up housing inventory in a matter of months for most areas."

Let's face facts … many people purchased homes way out of line with their realistic budgets. Plus, a large percentage of recent homeowners who had their home loans modified are once again behind in payments.

What is so wrong with renting? It seems that all these government programs are doing is prolonging the housing recovery.

Water Free Ways to Spruce Up Landscaping

Last year was Atlanta’s second driest on record. New England has seen water reserves reach record lows, and destructive, deadly brush fires have become more routine in the West, where severe drought conditions exist, says real estate list master Bert Sperling, who tracks shortages at www.droughtscore.com.

But curb appeal doesn’t have to suffer. It can flourish without heavy watering if smart choices are made.

1. Go dry. Some plants require a little water to get established, but once they’ve matured, they can remain dry. Xeriscaping, or drought-tolerant landscaping, refers to landscaping approaches that require little water to prosper. Specific plants must be selected for each climate. For Reno, Nev., for instance, an alpine desert area with significant development, one landscape architect suggests Artemisia-family plants such as Silver Mound and Dusty Miller. Also, mulch to conserve water around plant roots. The site www.xeriscape.com offers more tips.

2. Fake grass. Originally used for sports centers, faux grass has gone residential with products such as EasyTurf .One glitch: a green lawn may look a bit out of place when everything else in winter is barren or brown, warns Rachel Hart, landscape architect with Artemesia Landscape Architecture in Rena, Nev.

3. Lay the groundwork. Ground covers that look good all year are smart substitutes for grass. Consider creeping thyme, low-growing yarrow, and low-growing sedums.

4. Spread pebbles. For a nice textural Zen look, think pea gravel, decomposed granite, or colored rocks such as Arizona river rock. Accent with large boulders. Don’t cover a yard completely with rocks since it will reflect too much heat, especially if pebbles are white, says Lance Walheim, garden expert for Bayer Advanced in Peoria, Ill.

5. Pave with hardscape, such as brick. Because brick is porous, water percolates through it and into reserves rather than running off. Pockets of xeriscaping materials soften edges and add color.

CONSERVATION TIP

Paired with an electronic control, a drip irrigation system will conserve water by applying it directly to roots rather than dousing a wide area. Even the best system, however, needs diligent home owners who adjust it according to the seasons.

Spring Cleaning Checklist

With spring selling season arriving, take the time now to help your sellers polish their listings to perfection.

Let the sun in. Make any room look brighter with clean blinds and windows. Mix a solution of one part white vinegar to eight parts water, plus a drop or two of liquid dishwashing liquid, for a green window cleaner. Spray on and wipe with newspaper to avoid streaks. Washing on a cloudy day also reduces streaking.

Sniff out smells. Check the drip tray underneath your refrigerator and wash out any standing water from defrosting. Remove inside odors by washing the inside of the fridge with a baking soda and water solution. Boil lemon juice in your microwave and add it to your dishwasher to eliminate bad smells. Also, put the lemon rinds down the disposal. Add activated charcoal in the fridge to keep odors at bay.

Make your bed better. Vacuum mattresses and box springs, and then rotate and flip over. Do the same for removable furniture cushions. This is also a great time to wash or dry-clean the dust ruffle and mattress pad.

Clean those coils. Improve energy efficiency by vacuuming grates, coils, and condensers in your furnace, stove, and refrigerator (either underneath or in back). If a vacuum won’t reach, try a rag tied to a yardstick.

Wash the walls. Grease, smoke, and dust can adhere to walls and make even the best decorating look dingy. Wash walls using a general-purpose cleaner with hot water. Start at the top of the wall to avoid drips and in a corner so that you wash one wall at a time. Rinse the mop head frequently in clean water. And don’t press too hard, because flat latex paint won’t absorb much water.

BofA Boosts Mortgage Modifications

Bank of America Corp. added nearly 8,000 customers to the ranks of borrowers modifying mortgages under the government's Home Affordable Modification Program in the latest month.

The giant bank said 20,666 of its customers had a permanent Home Affordable modification as of the latest monthly report, up from 12,761 that had been completed a month earlier. Bank of America said another 22,303 permanent modifications are pending, which means final loan terms have been approved and are waiting for customers' signatures.

"We are in a position to show strong results in completion of permanent HAMP modifications as we move into spring," said Jack Schakett, loss mitigation strategies executive for Bank of America Home Loans. "We have a strong pipeline of modifications in the trial payment period, under review for conversion to permanent status, and out for final signature."

HAMP is a government program designed to lower monthly mortgage payments for homeowners who can no longer afford to make those payments.

To qualify for a permanent loan modification, a borrower with a trial modification is required to make three consecutive monthly mortgage payments and complete the documentation. There has been concern that many applicants wouldn't be able to meet the requirements because of the amount of paperwork and additional training and processing required by lenders.

More Households Benefit from Loan-Mod Program

The U.S. Treasury said its foreclosure-prevention program has cut mortgage payments for about 947,000 households, at least temporarily.

That was the number of households benefiting from easier loan terms at the end of January through the Obama administration's Home Affordable Modification Program, known as HAMP. The total was up about 11% from a month earlier. The administration estimates that 1.7 million households—about 3% of those with mortgages—are eligible for the program.

HAMP, announced a year ago by President Barack Obama, gives lenders incentives to help struggling borrowers avoid foreclosure by shrinking their payments through a reduction in the interest rate to as low as 2%. In some cases, loan terms are extended to 40 years.

Participants first are given three-month "trial" modifications. If they make payments on time and meet other requirements, including documentation of their income, they are given permanent modifications. As of Jan. 31, about 116,000 borrowers had such permanent fixes, up 75% from a month earlier.

Bloomberg News

A sign advertising foreclosure tours stands outside a home for sale in Las Vegas in August.

On the Rise

Permanent loan modifications granted under the Obama plan.

September 1,711
October: 5,181
November: 31,382
December: 66,465
January: 116,297

Source: U.S. Treasury

The Treasury said 60,000 trial modifications have been canceled. Many more are likely to fall out of the program this month because extensions of the time available to verify incomes have run out.

For those who fail to qualify, lenders may proceed with foreclosure or seek other solutions, including short sales, in which homes are sold for less than the loan balance due.

The program's dropout rate is likely to be high, partly because lenders allowed many people into trials without first making sure they qualified. Wells Fargo & Co. said 92,000 of the borrowers it services had made three trial payments by Jan. 31. It expects about half of them to get permanent modifications. Others failed to provide all or some of the required documents or were found to be ineligible after the paperwork was reviewed.

Among loans with permanent modifications, the median monthly savings is about $522, the Treasury said. It said borrowers in trial and permanent modifications have saved more than $2.2 billion so far.

Prodding lenders to saving more borrowers, the Treasury is publishing monthly comparisons of their performance. As of last month, it said Citigroup Inc. had provided modifications to 50% of the estimated number of eligible borrowers. Both J.P. Morgan Chase & Co. and Wells Fargo were at 38%, and Bank of America Corp. was at 22%.

In a statement, Bank of America said it had made stronger gains than rivals last month in providing trial modifications and converting trials into permanent fixes.

Lifeline Needed for Underwater Homeowners

An estimated 4.5 million home owners owe 75 percent more than their homes are worth. That number is likely to peak at 5.1 million in June, affecting 10 percent of home owners and making them increasingly likely to just walk away.

''We're now at the point of maximum vulnerability,'' says Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. ''People's emotional attachment to their property is melting into the air.''

Consultants at Oliver Wyman calculated that 17 percent of owners defaulting in 2008 –about 588,000– chose to default even though they could pay.

First American estimates that it would cost about $745 billion – about the same as the original 2008 bank bailout – to restore all underwater borrowers to the break-even point.

Doing so would be seen as highly unfair by many taxpayers, says Michael S. Barr, assistant Treasury secretary for financial institutions, but doing nothing would be another blow to a fragile economy.