Sean and the folks at Foreclosureradar.com are very gracious in providing their data, though I don’t like this – fewer trustee sales, and more cancellations.
If the trend continues, we’ll have fewer REO listings, which are typically well-priced and vacant, and instead have more short-sales and loan modifications:
The bulk of the defaulting mortgages are from refinancings, which are full-recourse. Are the lenders/servicers gearing up for The Big Collection?
Maybe not, and perhaps the opposite. They could be anticipating HAFA, the latest foreclosure-avoidance device that encourages lenders and servicers to approve short sales, and deeds-in-lieu of foreclosure. HAFA begins April 5th.
HAFA directs the servicers to pre-approve the short sale, prior to listing the home for sale.
Once approved, the homeowner gets four months to sell the house, stalling any foreclosure proceedings, and then gets $1,500 for moving expenses. It also looks like the homeowner get released from all liability too.
Here are more details on HAFA, from Inside Mortgage Finance:
The Obama administration has released detailed guidance on a new Home Affordable Foreclosure Alternatives program that features cash incentives for borrowers, servicers and investors for executing short sales or deeds-in-lieu of foreclosure.
The HAFA program is available for loans that otherwise meet the criteria for the Home Affordable Modification Program but can’t be restructured successfully. The guidelines issued recently as HAMP Supplemental Directive 09-09 only apply to loans not owned or securitized by Fannie Mae and Freddie Mac, which have their own short sale and deed-in-lieu incentive programs.
The new program won’t take effect until April 5, 2010, and servicers are expected to develop their own written policies to implement it. All HAFA loans must first be considered for HAMP modification, and data collected in that process can be used for assessing a possible short sale or deed-in-lieu transaction.
If the servicer hasn’t already done so, the borrower must be advised in writing about the availability of a short sale or deed-in-lieu and have 14 days to mull it over. Servicers are expected to perform a financial analysis to determine whether a short sale or DIL is in the best interest of the investor or mortgage insurer, but the HAMP net present value model does not project such cash flows.
The servicer has to get an independent property valuation that cannot be charged to the borrower, and a title check must also be completed. If neither a short sale nor DIL is available, written notice must be made to the borrower.
Before approving a short sale, the servicer has to determine the minimum net proceeds that will be accepted by the investor. Customary transactions costs must be taken into account. The program requires servicers to use a standard short sale agreement that outlines the responsibilities of the servicer and the borrower that includes a fixed termination date not less than 120 days after the agreement takes effect.
A DIL transaction must include the full release of the debt and waiver of all claims against the borrower. The borrower has to agree to vacate the property by a certain date, leaving it in clean condition with a marketable title.
Servicers may agree to a DIL even if the borrower hasn’t already made a good-faith effort to market the property, if that’s acceptable to the investor.
No Foreclosure
Servicers may initiate or continue with a foreclosure proceeding during the short sale or DIL process, but the foreclosure can’t be completed while assessing a borrower’s eligibility, waiting for the return of an executed agreement, during the term of a short sale agreement or pending transfer of the property during a DIL.
The borrower’s mortgage payment cannot exceed 31 percent of gross monthly income while a short sale or DIL is pending, and servicers may waive payment altogether. The borrower is responsible for clearing up any other liens on the property, although the servicer may negotiate on the borrower’s behalf. Second lien holders can get up to $3,000 from the proceeds of the sale to release the loan.
Following successful completion of a short sale or DIL, the borrower can get up to $1,500 to cover relocation expenses. Servicers are paid $1,000 to cover administrative and processing costs for these transactions. Investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid to second-lien holders.
The program features a complete set of required standard documents and reporting requirements. As with HAMP itself, Fannie Mae is serving as the administrator for the short sale/DIL program and Freddie is the compliance agent.
As long as the Short Sales drive prices down, I don’t think I mind this.
“A DIL transaction must include the full release of the debt and waiver of all claims against the borrower.”
Sounds like a sweet deal.
will the short sales then count as comps?
Agreed, it’ll extend the free-rent for 4-8 months, and then borrowers will walk away scot-free, except for credit dings that’ll last 1-3 years.
If they get short sales pre-approved and closing in 45-60 days, the market would amp up. I’m not sure prices would go down, unless tons of defaulters who were going down with the ship, all of a sudden want another 4-8 months free rent.
How many more people are there who want to short sell, but haven’t put their house on the market? I guess the re-casters are waiting until the last minute, but that’s about it.
Yes, the short sales would be comps.
Well, maybe todays QCOM news will drive some people over the edge or keep some demand on the sidelines
http://finance.yahoo.com/q?s=QCOM
Green shoots!
Joe, I was thinking the same thing. If the stock market retests the March lows things could get ugly.
Consider this…
People that get a paycheck from your tax dollars are using your tax dollars to try and make houses lower priced (through fannie+freddie) for short sales from banks that were given your tax dollars to stay in business.
All of this assumes defaulting owners will actively participate in these programs, most have not and wish to remain in the “rent free” and “ignore the Bank” program. The banks have shown very little ambition to file NODs or NOTs so why should these “owners” do anything?
Banks are not foreclosing because they do not want to designate the reserves for a defaulted asset and more importantly they do not want to lend as that would deplete their capital reserves. Their current thinking is they can acquire deposits and assets for almost nothing by remaining very attractive to the FDIC by keeping their capital ratios extremely high and when another failed bank is closed the FDIC hands them all the goodies, much better than trying to make a profit off interest income.
I could be missing something, but isn’t the success of this new program still contingent on the banks’ willingness to cooperate?
Stepping back and trying to look at the big picture, what I find interesting is that this is the first government program NOT oriented to the borrower retaining the house. It is a government program, however ill conceived, to implement and encourage borrowers to move on.
I remember when the servicer guideline directive was published a month or two ago, I laughed because the HAMP servicer exhibit 1 which was supposed to be submitted by the borrower had the standard HAMP Govt. logo on the form “helping you stay in your home”. A few days later, the phrase disappeared from the form when I checked again.
For all of you that want to cut out the flipping/flippers–you should love this plan!
Banks will get shorts that can sell for full market price, because they’ll have no uncertainty and a limited delay. And previous/current owners will get to walk away from the rest of their debt, and buyers will get a tad bit more selection than the have now.
Looks like banks win on this one. The market price of their collateral just went up.
“Looks like banks win on this one.”
The banks will always win, count on it. They hold the money, which means they have the entire country …nay, world…by the cojones. They will always win in the long run because money buys access and a voice into the lawmaking process.
And then you get a 1099 for a $400,000 gain/debt forgiveness. Now you owe the feds and state 200K.
Nothing is free, except Jim’s videos!
So the taxpayer is chipping in around $5k, depending upon the situation, to complete the short sale. Assuming the loan isn’t Fannie or Freddie, the lenders will be taking the rest of the loss, right? Am I misunderstanding something?
Maybe I’ve become conditioned to huge bailouts, but this doesn’t seem too bad to me if it gets people who can afford the home in and those that can’t afford the home out.
I just don’t see the lenders realizing these losses if they can keep the extend and pretend game going.
So the taxpayer is chipping in around $5k, depending upon the situation, to complete the short sale. Assuming the loan isn’t Fannie or Freddie, the lenders will be taking the rest of the loss, right? Am I misunderstanding something?
Maybe I’ve become conditioned to huge bailouts, but this doesn’t seem too bad to me if it gets people who can afford the home in and those that can’t afford the home out.
I just don’t see the lenders realizing these losses if they can keep the extend and pretend game going.
alles_klar | January 28th, 2010 at 1:12 pm
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That’s how I see it, too. This is the least offensive “bailout” to date. Still not good — because banks should take the full losses they created when lending to deadbeats and because borrowers should have a foreclosure on their records if they didn’t pay off the loans, etc. — but at least it will get things moving.
Let’s hope they finally get that “shadow inventory” on the market.
As a further note, this spring and summer are going to be extremely interesting if the government programs proceed as planned:
-FHA tightening loan requirements;
-Fed says it will stop buying MBS in April;
-Housing tax credit scheduled to end in April;
-Starting at the end of this month, HAMP trial periods no longer being extended;
-Starting in June, will need to get pre-approval before getting in HAMP trial period(per Calculated Risk today); and
-HAFA may spur lots of short sales this summer.
“We are in a transition from industrial power to technology driven economy.”
Did you miss the dot com days?
its still offensive to me, $5k out of my pocket for the deadbeats (both bankers and housedebtors).
personally, i hope that the banks balk, the 1sts foreclose, and all the 2nd holders sell the debt to the collection agencies.
Local Boy,
Why do you think this will cut out the flippers?!