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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.

The Wisdom of Lowering a Short Sale

Recently I had the privilege of interviewing Troy Huerta, an active agent who closed 200 short sales in 2009, during one of our Partner First educational webinars. (also one of our PSC Trainers) During our discussion he commented on how in many cases he and / or his team encourage the Selling agent to go back to the Buyer, lower the price slightly, and ask for some closing costs to be paid for by the lender. The logic was that

a. The Buyer was possibly going to be more loyal if he / she could purchase it at a lower price (starting off on the right foot),

b. The additional closing costs might increase the Buyers patience and loyalty (and excitement), and the big one...

c. Most of the time, the lender will ask for a bump in the price anyways, so why not build it in to the transaction (which is a major reason for short sale failure, Buyers not willing to wait, nor increase the price based on the lenders instructions)

Since that call I have been asked if I agree with this practice and what my sentiments were. Firstly, far be it from me to discount the business practice of a highly esteemed colleague who's success speaks for itself. And secondly, let's look at the foundational principles that are likely in question.

1. Is lowering the price slightly in the Sellers best interest?

As a listing agent, our fiduciary duty and legal obligation is to act in the best interest of our client, the Seller. If Troy's vast experience serves as our ruler, and most of the time the lender does come back with a slight increase / bump in price, and that is a major cause for short sale failure...then let's look at that point. If doing something that increases the chance of short sale success is in the seller's best interest, then why would that be in question. My gut feeling is that many agents feel it is not normal, and thus must be wrong. Wrong to whom? The lender? The lender who is still going to get every bit of the amount they demand (based on their BPO)? How could it be wrong to them? It is merely a strategy that helps all parties achieve their goal...short sale success!

2. Can the Lender / Servicer demand the highest amount be offered?

My answer is "no". They are not the Seller, they are merely servicing the loan for the investor with the goal of minimizing the loss severity. They are in a passive position prior to the offer submission. Now, would they prefer that the higher offer be sent right away? Possibly, but not in all cases. Many times, even in my experience, the lender / servicer (i.e. loss mitigation) is actively assisting our team in finding creative solutions to satisfy all lien holders. As long as they receive their bottom line, what difference does it make how we got there? Remember, we do not have a legal obligation to act in the best interest of the lender / servicer, but of our client. This is not to say anything should be done underhandedly. Everything should be on the HUD-1, and full disclosure should be made to your client. But the means of achieving the desired result may require strategies such as this.

Always ask yourself, is what I am proposing to do in my clients best interest. If it is not, don't do it. If it is, make sure there are no RESPA, DRE, State, local government violations and proceed cautiously and intelligently.

Navigating through these choppy waters is not for the casual agent. We can learn a lot from our colleagues.