Thursday, April 24, 2008
Short Sales with Countrywide (the update)
Here’s the latest information on what Countrywide will do and what they won’t do.
I reported that there were various rumors going around that involved countrywide and short sale negotiations.
Some of those were true - others were not. ( here and here )
Then again, the rules are changing constantly. CFC has informed it’s Loss Mitigation Department as of late last week via an internal memo (I tried to get a hold of it without success) that they are indeed considering short sale negotiations on most all property.
Here’s what I’ve learned:
1. It depends on the Investor. Is the loan a Fannie, Freddie, ALT-A, Equity, etc.?
2. Needs a surplus percentage higher than 30%.
3. If not, must show a proper Financial Hardship
What constitutes a Financial Hardship with CFC?
- Natural Disaster
- Disability Mortgage Holder or Family Member
- Death of Mortgage Holder or Family Member
- Illness of Mortgage Holder or Family Member
- Property Damage (mold) Greater than 50% or more of the property
- Divorce
- and Other Financial Considerations
ME: “How do you calculate the surplus percentage?”
THEM: She didn’t know. The memo didn’t say. She said it was much like DTI. I was pushing my luck. I tried to get one more question answered…
ME: “Does the home have to occupied?”
(see Momma don’t let your Countrywide Houses go vacant)
THEM: “Not if they have a Financial Hardship”
So this tells me that if the present debt obligation is high - the income is low, according to their “surplus percentage” you don’t need to qualify under the Financial Hardship section.
However, if the income is high, the debts are low, you might need to knock off your significant other to qualify. At least according to their memo.
Remember all rules are meant to be broken. Never give up hope!
Labels: Loss Mitigation, Negotiation, Short Sale
Listing Agents, and even Private Investors.
Don't work harder - Work Smarter!
Tuesday, April 22, 2008
Are you Liable for a Deficiency Judgment?
Each state has it’s own rules. In the State of California, for Residential Property (1-4 Units), Owner Occupied here’s a quick chart.
| Lender | Seller Financed | Refinanced |
| NO Deficiency Judgment if Senior or junior Lien Holder * see Civil Code 580b. | NO Deficiency Judgment if Senior or junior Lien Holder * see Civil Code 580b. | YES - Deficiency Judgment if judicial foreclosure NO Deficiency Judgment if Trustee Sale Foreclosure |
* If a senior Lienholder forecloses on the property, the wiped out junior loan lienholder who no longer has a secured note may NOT sue on this promissory note for those categories indicated on this chart.
There are other factors and conditions which may change the result (such as borrower fraud).
Always consult a legal professional.
Labels: Mortgage Debt Relief Act, Notice of Default, Short Sale
Listing Agents, and even Private Investors.
Don't work harder - Work Smarter!
Wednesday, April 16, 2008
Baaaaaaaa!
Cattle, Sheep. Goats, go ahead and pick your favorite. You are a now a piece of livestock in the eyes of Fannie Mae and Freddie Mac.
And you thought you were just another number?
As the pressure mounts for more and more homeowners, it's no surprise that Foreclosure Rates have risen.
Yesterday, Bloomberg News reported that,
"U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders."
From the mouths of Lenders (thanks to Calculated Risk),
Don Truslow, Wachovia Corporation - SEVP, Chief Risk Officer
"Ken, that's exactly right. And Kevin, it's just this pattern almost that somewhere -- I don't know where the tipping point is, but somewhere when a borrower crosses the 100% loan to value, somewhere north of that and they presumably run into some sort of cash flow bump, whether it's reduced income or kind of normal things in life that have created past dues before, their propensity to just default and stop paying their mortgage rises dramatically and I mean really accelerates up and it's almost regardless of how they scored, say, on FICO or other kinds of character, credit characteristics."
Dowd Ritter, Regions Financial Corp. - CEO & President:
"I would tell you that in a few of those that you saw us basically write off, we did not write them down, and because some of those -- they did have firsts, but there are cases where people as early as 18 to 24 months ago had one value on that property, and as they started to sell it or refinance it, they realize that valuation was 40% below what it was 18 to 24 months ago, and they're walking away from those homes in those markets."
What we're talking about is a
Realized Fear of Herd Mentality
Make no mistake, the lenders are worried. This has moved up the food chain to Fannie Mae and Freddie Mac who came out with new guidelines for those wishing to finance in the future with a Foreclosure on their record.
As more and more people "walk away" from their homes, it becomes easier for the next person to make the same decision.
Herd Mentality
Cutting to the chase (a herding term) Fannie is saying to homeowners,
If you Walk Away today we're going to punish you tomorrow. We will now prohibit foreclosed borrowers from getting another mortgage for Five Years!
And even after that five year period is up, we're going to require you come in with at least 10% down.
Oh and we want you to have a really good credit score too. Better have better than a 680 FICO."
Five years isn't so long is it? Doesn't a foreclosure drop off your credit after a few years?
Foreclosure is Forever.
Remember, on the loan application is a cute little box for you to check Yes or No.
Check the YES Box and your loan application jumps out of the Automated Underwriting line (easier approval process) and is pulled into the black hole that sometimes is Manual Underwriting.
This 
makes it all that much more important for homeowners in trouble to fully examine all their options. For instance, by going through the "hassle" of a Short Sale, you'll avoid the Foreclosure Label.
I see that as a big positive in an otherwise negative situation. "I'm never going to own a home again!"
Who knows what the future holds? What if Grandma passes away and gives you her home? What if she had a reverse mortgage on that bungalow? Now what are you going to do?
By the way: Not checking the Yes box (with a foreclosure in your distant past) is grounds for Fraud.
"Mommy, why are they taking Daddy away?"
"Daddy was a very bad man, he checked the wrong box!"
Labels: debt forgiveness, Notice of Default, Short Sale
Listing Agents, and even Private Investors.
Don't work harder - Work Smarter!
Monday, April 14, 2008
The Dreaded 1099-C
Here's what a blank form looks like. In a Short Sale or Foreclosure this is what the Lender might chose to file (a foreclosure might send you a 1099-A too).
Like any other 1099, one copy goes to the taxpayer (you) and another copy goes to the IRS.
(click to enlarge)
The most important box is
Box Number 2: Amount of Debt Canceled
This is not your loan balance. It's your loan balance, plus every single little nit picking fee the Lender can tack on. Add penalty and fees too!
In a Foreclosure, these fees and charges are pretty much left unchecked by anyone from the homeowner's side.
In a Short Sale, either the Listing Agent or a Negotiator can help negotiate a reduction of these charges. In fact everything in a Short Sale is negotiable including the very issuance of this 1099.
Remember, the Lender is reporting this to both you and the IRS as "income". While you may or may not fall under the protection of the Mortgage Forgiveness Debt Relief Act (HR 3648), there is also the State tax consequences to be considered.
When I hear homeowners who say they don't care about a short sale, "just let it go to foreclosure", because they are not going to gain anything from it - this is one of the first gains I think they don't see.
I can see that. If you didn't receive a 1099-C, because you completed a short sale and your Negotiator minimized Box 2 or negated the issuance of the 1099 all together, would you notice?
Maybe not.
But I can say, TurboTax (or your tax professional) would notice more if they didn't.
Labels: Short Sale Negotiation
Listing Agents, and even Private Investors.
Don't work harder - Work Smarter!
Friday, April 11, 2008
Pre-Approved with US Bank?
I just heard that US Bank will not finance a home if it is an REO or Short Sale property.
Like the Countrywide rumor yesterday, this too is only a rumor for right now. I’ll see what I can find out later.
Remember, this has nothing to do with the lender that owns the house. This is about the financing the buyer comes in with.
Maybe you don’t know who your lender will be?
Your best bet is to ask your Mortgage Broker who you are approved with. If it is with US Bank - don’t be surprised if your broker doesn’t know this. Yes, he’ll find out later - but isn’t it too late then?
Using a Mortgage Broker for your financing? Good for you! In these rapidly changing times adaptability and flexibility are critical. A good Mortgage Broker can offer you that. Direct Lenders cannot.
Update: According to two US Bank Retail Loan Officers, they are still doing loans for just about all properties. I’m still waiting to hear back from the wholesale side.
Labels: Lenders to Avoid, Short Sale Negotiation
Listing Agents, and even Private Investors.
Don't work harder - Work Smarter!
Per an Area Sales Manager:
Unlikely. That would violate a number of statutes, I would think. More likely it was a misinterpretation of our anti-flipping policy, which states that we cannot do a loan for a borrower on a property that has changed hands (had an ownership deed change) in the past 90 days. We first thought that ruled out REO’s since they take it back from the defaulting owner, and list it for sale within 90 days (if they are lucky in this market.) But this would obviously be an exception to the anti-flipping policy.
That’s my main guess as to where that comment would come from. Otherwise, it may be somebody who tried buying a completely trashed house, and the underwriter required the health and safety related deferred maintenance to be cured prior to close. (most lenders require these items to be addressed.) As a point of interest, we are one of the few remaining lender willing to do an escrow hold-back of 1.5 times the estimated repair bid and allow the deal to close prior to the completion of the items. It’s obviously the buyer’s monies that would be held by escrow, until we have the appraiser certify that the certain items were cured. It’s quickly released after we get the appraiser’s reinspection cert.
Other than that, I believe I have the authority to speak for the bank, as an area sales manager, that the report that US Bank does not finance REO is wholey false. In fact, we have a CRA program still at 97%, even in a declining market (no 5% LTV reduction). The program is quite lenient, even allowing for the 3% to be a gift directly from the seller!!! No need for the Nehemiah game on an expensive FHA! In light of this program, I would think that we are one of the most AGGRESSIVE lenders in the area of first time homebuyers.
And in light of the escrow hold-back program, that would make us one of the most REO-friendly lender in the industry!