The Short Sale World Is Spinning

The Short Sale World is Spinning 2MP,
HAFA and Second Chance Can HAFA Work With 2MP?

First, the news on 2MP, Treasury’s second lien modification program that works in tandem with HAMP. As we mentioned here last week, Wells Fargo signed on to the program. In January, Bank of American was the first major servicer to formally agree to participate in the program. Today, Chase committed to the program, leaving only Citi, of the big four, yet to commit. One has to believe that Citi will announce very soon.

While the 2MP program has been specifically drafted to work with HAMP modifications, I have had conversations with representatives from Treasury who have indicated that coupling 2MP with HAFA is a logical next step. Treasury has yet to announce an official initiative to integrate 2MP and HAFA. To apply 2MP to HAFA will likely require a new ‘Directive’, as certain provisions of 2MP would seem to be incompatible with a high percentage of HAFA short sales.

We expect to see a shift to the direction of coupling HAFA and 2MP soon, and we will keep you posted. In the meantime, we can draw a few conclusions as to how 2MP might work with HAFA and offer a couple of suggestions to agents working with homeowners looking to do a short sale who may qualify for HAFA, and possibly 2MP:

1. Work with the homeowner on trying to keep the 2nd from getting charged off. Work with the servicer on the second to agree to some payment arrangement that keeps it out of charge off. Charged off seconds may be tougher to settle through 2MP, and we all know they are tougher to settle now. Note: in most cases 2nds become seriously at risk of being charged off at the 180 days delinquent mark.

2.Get educated on both the HAFA program and on 2MP. There will be a great deal of confusion as to how the programs will operate and which loans, and which homeowners are eligible. Even Treasury describes the programs as complex, so go to a trusted source and get thorough training on how the programs work.

A ‘Second Chance’ at Homeownership?

Interesting article in American Banker today. A proposed Lender’s ‘Second Chance’ plan is discussed – well I assume it is discussed since I don’t pay the rather heavy subscription fee to receive anything other than a teaser from American Banker – that would make potential borrowers eligible for mortgage loans two years after a foreclosure. My immediate reaction was to naïvely believe that the Mortgage Bankers Association was looking to do a good deed here. Then, I read the headline: “Can Rehabilitating Homeowners Buoy the Mortgage Market?” In other words, if we help those folks that have suffered through the pain of mortgage hell, we could probably ramp up sagging revenue. Sorry for the digression. The fact that the issue is being placed on the table is important. It has been my feeling for some time, in fact as early as 2006, that policy makers and the mortgage industry would have little choice but to find a way to get many of the borrowers who went through foreclosure back into a mortgage – likely sooner rather than later. Agents, stay engaged with all your clients – past, present and future. Look for ways to add value by providing information and industry updates that will have them thinking about homeownership. Whether they weathered the storm and may be ready to move up, suffered a setback and are ready to re-enter the market, or flourished and may be ready to look at buying a duplex, your client database should be a primary focus when you are business planning.

HAFA Update

White House "Beefs Up" the HAFA Plan and offers "Unemployment Assistance":

In an announcement today, the White House announced some big changes / improvements to the HAFA plan. The changes are vast and in some cases a huge improvement upon the earlier HAFA version. Key points include:

• Principal Reductions for Underwater Mortgages
• FHA Refinancing for Underwater Mortgages
• Assistance for those who are Unemployed
• HAFA Enhancements
  • Servicer incentives on short sales and deeds-in-lieu from $1,000 to $1,500
  • A doubled payout to 2^nd lien holders from the previous 3% to a 6% cap
  • Servicer incentives for short sales or deeds-in-lieu have also doubled from $1,000 to $2,000
• Servicers are required to "evaluate" Borrower's who have missed "at least" two payments and servicers are not allowed to initiate foreclosure proceedings until it is determined that borrower's are ineligible for HAMP.

One of the best explanations of these updates as well as great links to HAFA related material comes from Carrie Bay of DSNews. Click here for full story.

No Positive Equity until 2020?

This morning, DSNews.com reported that First American CoreLogic's recent study shows that some areas in the U.S. have properties that are in a present negative equity scenario that will not see positive equity until 2020. Many of us knew it would be a while, but 2020? Their stats are based on data extracted from research done in many areas across the U.S.

So what does this mean for us in the real estate industry? Well, firstly, that short sales will be around in some capacity for a long time. Agents that are on the fence about short sales will need to surrender and take the plunge...or face a probable business failure. Agents that have already built up their business by getting certified and helping homeowners sell their upside down properties in the pre-foreclosure state will have a head start.

What does this mean for defaulted or soon to be defaulted homeowners? The study mentioned states that "The latest numbers from First American CoreLogic show that more than 11.3 million, or 24 percent, of all residential properties with mortgages were underwater at the end of the fourth quarter of 2009". Wow! That's almost a quarter of the mortgages in the U.S.! Furthermore, "Among the new housing initiatives announced by the administration Friday was assistance for borrowers with negative equity. In order to deter these homeowners from strategically defaulting, the Treasury will begin requiring servicers to consider principal write-downs as part of their Home Affordable Modification Program (HAMP) evaluations for borrowers whose loan balance is more than 115 percent of the property’s current value. The plan also includes a Federal Housing Administration (FHA) refinancing program for negative equity mortgages."

Ok, so we are expecting defaulted homeowners to "strategically default" on their loans due to the fact that there is no light at the end of the tunnel...equity speaking. That could create a disasterous effect on the housing market, which is already poised for future foreclosure waves in mass volume. So what is the governments answer to this potential epidemic of massive "strategic defaults"...principal write-downs (reductions) via loan modification for borrowers whose LTV is more than 115%. There is a lot of chatter about these principle write-downs and it will be very interesting to see how this plays itself out. Bank of America unveiled a plan on upside down defaulting HELOC's (that are in junior position) called "Earned Principle Write-doowns". With this program, the borrower would have to make the new modified payment for 5 years before the loan principal would be permanently reduced.

PartnerFirst members, chime in here or in the discussion/open forum area about your thoughts on these matters.

Article Link: http://www.dsnews.com/articles/print-view/how-long-will-negative-equity-last-2010-03-29