The HAFA program is the government’s new short sale program. The government created the program in an effort to assist homeowners who can no longer afford their home and who want to avoid the damage a foreclosure does to a borrower’s credit. The following is my understanding of the program guidelines as presented in the MAKING AFFORDABLE Supplemental directive 09-09.
The federal government has asked lenders to voluntarily implement a new program called Housing Affordable Foreclosure Alternative (HAFA.) The start date is April 1, 2010 although it is expected that some lenders will implement the program sooner and as I stated earlier, lender participation is voluntary. The guidelines further state that a lender who participated in the HAMP (Homeowner Affordable Modification Program) will be required to participate in HAFA. Loans in which Fannie or Freddie has an interest in do not qualify. They are working on their own short sale program.

In order to qualify for HAFA, a homeowner must meet the basic eligibility requirements for HAMP. They are:
• The property is the borrower’s primary residence.
• The mortgage loan is the first lien originated before 01/01/09.
• The mortgage is delinquent or default is reasonably foreseeable.
• The current mortgage balance is $729,750.00 or less.
• The borrower’s monthly mortgage payment exceeds 31% of the borrower’s gross income.
• If the borrower has mortgage insurance, the insurer must waive any right to collection from the
borrower.

If a borrower meets the following criteria, the participating servicer must give the borrower the option to enter into the HAFA program:
• The borrower did not qualify for the HAMP trial period.
• The borrower did not successfully complete the HAMP trial period.
• The borrower is delinquent on their HAMP modification.
• The borrower requests a short sale or deed-in-lieu.

The good news for sellers who participate in HAFA:
• The lender is required to forgive any deficiency (no more waiting and wondering if they going pursue the deficiency.)
• The sellers will get $1500.00 at close of escrow.
• Servicers are expected to provide an approval letter 10 days from the date the offer is received (no more waiting for months with no guarantee that the short sale will be approved.)
• The short sale will be pre-approved and the server will provide the listing agent with a pre-approved listing price.
• The server will pay up to 3%, but no more than $3000.00, to junior lien holders.
• If a borrower meets the HAMP qualification requirements listed above, they can participate in HAFA without going through the HAMP program first; as long as their servicer is participating in the program. However, if the borrower hasn’t gone through HAMP first, it will be very difficult for a servicer to get an approval letter to the borrower ten days from the offer submission date, and it will more than likely create delays. During the HAMP program process the borrower’s hardship is evaluated. The servicer becomes very familiar with the homeowner’s situation and all the obstacles that cause short sales to take forever are dealt with. Short sale pre-approval is pretty much determined through the HAMP process, so going through the HAMP program first will help the short sale to move quickly through HAFA.

The good news for buyers:
• The endless waiting for short sale approval will be eliminated. Short sale approval in 10 days or less.
• Lenders must allow at least 45 days for close of escrow.

This program will take all those frustrating unknowns out of the short sale
process.

The HAFA summary states that it is the borrower’s responsibility (with the assistance of their Realtor) to “deliver clear marketable title to the purchaser or investor.” It further says that the servicer can assist the borrower and the listing agent in the negotiations with lien holders, but they are not required to do so. An experienced Short sale agent knows how to negotiate with junior lien holders; however juniors could create problems based on HAFA guidelines.

The program provides $3000.00 for junior lien holders. It also requires that junior lien give up the right to pursue any deficiency. If a junior wants more than $3000.00 and/or is not willing to forgive the deficiency, the borrower will not be able to obtain clear title as required. Multiple junior liens could create a problem. If there is more than 1 junior lien holder, $3000.00 may not be enough to satisfy them all.

Another potential issue is that senior liens are not mentioned in the program guidelines. Property taxes are considered a senior lien and currently lenders will pay past due property taxes in order to attain clear title. Since the HAFA program stipulates that providing clear title is the borrower’s responsibility, one could assume that the borrower will have to pay any past due property taxes, before close of escrow, so clear title can be provided.
definitely
One other important requirement:
• The transaction must be completely arms length. No one involved in the transaction can be related. This includes the Realtors, the buyers and the sellers.

Currently in a short sale transaction the lender does not automatically give up the right to pursue. Large numbers of short sales fail because borrowers are concerned that the lender may pursue the deficiency. The fact that the HAFA program requires that the lender forgives any deficiency is a huge relief for borrowers struggling with their mortgage. Other than the problems that may arise with other lien holders, this program is a major step in the right direction for borrowers who are “under water.” It gives them a real chance at a fresh start. There are so many borrowers out there that are responsible people who find themselves in a night mare they never imagined, this program is an opportunity to move beyond the night mare and begin again. It is also a win for everyone who lives in the neighborhood of the borrower who participates in HAMP. Short sales generally do not bring down the value of the neighborhood as much as an REO does. Overall we see this as a positive solution for a homeowner in a very difficult situation.

US Treasury sets guidance on housing short sales

(Adds financial incentives)

By Al Yoon

NEW YORK,  (Reuters) – The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage companies to speed “short sales” of homes and other loan modification alternatives to stem a rising tide of foreclosures.

The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury’s website.

Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.

The incentives, first announced in May, expand on the government’s Home Affordable Modification Program, known as HAMP, that has seen limited success in lowering payments for distressed homeowners. The Treasury earlier on Monday stepped up pressure on mortgage companies to make permanent the 650,000 trial modifications they have started. See: [nN30451859].

“While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve” or offer a modification, the Treasury said in its announcement.

Financial incentives for completing short sales or similar deed-in-lieu transactions — in which the deed is simply transferred to the lender — include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would receive $1,500 in relocation expenses.

Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower’s credit rating and leave the property in better condition than when a homeowner is evicted. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure.

But short sales have been frustrating for borrowers and real estate agents, often hung up by negotiations with multiple lien holders and mortgage insurance companies. Real estate agents have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Among requirements, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt.

It also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

In one of the most contentious issues gumming up negotiations between lenders, the guidance caps the aggregate proceeds to subordinate lien holders at $3,000.

Second lien holders in recent months have begun demanding more money from the first lender, seller, buyer or agent in exchange for releasing their claim, agents have said. Because primary lenders would face larger losses in a foreclosure, some subordinate lenders have felt empowered, the agents said.

The largest second-lien holders are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc.

Second lien holders may proceed with a short sale outside of the Treasury program, if they felt the cap was too low, a Treasury official said in October.

“If there was a short sale program that didn’t recognize the second lien holder position, it could have pretty damaging consequences for the industry,” Sanjiv Das, chief executive officer of CitiMortgage, said in an interview last week.

(Editing by Leslie Adler) ((albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net))

Source:

http://www.reuters.com/article/idUSN3046464720091130?loomia_ow=t0:s0:a49:g43:r1:c1.000000:b29133320:z0

One of the biggest parts of the short sale Wisconsin transaction process is composing the letter of hardship. This is required piece of documentation that proves that you are in hardship and thus need to short sell your home. You will need to explain your situation so the lending company can understand why they need to consider a short sale for your home. This can be a very hard letter to write. For many, finding the time to sit down and write such a personal letter is hard enough but many will also find it hard to find the right words to express their emotional strain and financial burden. Many are also ashamed to put the words to paper as it makes the situation real. However, writing this letter is the biggest step to a brighter future and, in most cases, the only way you can avoid a foreclosure on your home.

How to Start your WI Short Sale Letter of Hardship

Start your letter with the following formalities:

ü      Lender Name/ Lender Address/ Lender Fax Number

ü      Today’s Date

ü      RE: Hardship Letter – Short Sale for YOUR ADDRESS

ü      To Whom It May Concern

The Bulk of your Wisconsin Short Sale Letter of Hardship

Your short sale letter of hardship does not have to be a novel but it should be a typed page in length outlining the details of your current situation. This will include:

ü      Where you purchased your home and your financial situation at that point. You will need to include your salary and other incoming income.

ü      What happened to cause the payments to pile up and for the missed payments? This may include a job loss, unexpected bills or medical payments, a loss of a spouse, a divorce or separation, an increase in interest rates or anything else that has happened to cause financial hardship. You will need to be as honest and detailed as possible when explaining your situation.

ü      The details of the WI short sale. You will then need to explain that you are now trying to sell your home and ask the lending company to accept your offer as ‘payment in full.’ Let them know that you just “want to move on” with your life.

Conclude your letter by informing the lending company that you are available to answer any questions or provide any more details and include your name, address and contact number at the bottom.

The Importance of a Letter of Hardship in a Wisconsin Short Sale

Your letter of hardship is your plea to the lending company on a human level. If your letter is well written and compelling, then it will be a lot easier for the lending company to accept the short sale offer. Many people are not naturally poetic and have trouble finding the right words. That is why it’s important to get the help you need from a qualified short sale agent in Wisconsin when composing your letter of hardship.

When it comes to a short sale transaction, it’s important to understand that the process can take a lot longer than a regular real estate transaction. When you bought your home, you probably made the offer, contacted the lending company, were approved shortly after, signed the contract and moved in within 30 to 60 days of signing. Unfortunately, this process will take a little longer when dealing with a short sale in WI. However, there are ways to speed up the success of your short sale. This can be especially important if you are racing against the clock of foreclosure.

Make your home desirable – when it comes to a short sale, the first step is to attract a potential buyer to your home. And, the better your home looks, the higher the offer is going to be. This does not mean you need to spend a fortune on renovations but you should try to up the curb appeal by doing little things around the house. Keep the yard and the inside of the house as clean as you can. Try to rearrange the furniture to focus on the house’s best assets. There is nothing worse than arriving at a potential home and seeing an unattended lawn. It may seem silly but it’s the little things that make the difference in real estate offers.

Be as Detailed as Possible with the Documentation – once an offer has been put on your house, you and your Wisconsin short sale agent will need to sit down and complete the documentation. This will include the purchase agreement as well as your letter of hardship and reasons for needing a short sale. The process of gathering the documentation can take up to two weeks but you can help this process by including any relevant details. Go through all your old financial statements and make sure you include any pay slips, termination letters, medical bills and other evidence of your hardship. Make copies if you cannot give the originals.

Make sure you Choose a Qualified Short Sale Agent in Wisconsin – finally, much of the short sale transaction comes down to the lending company. However, if you choose a qualified Wisconsin real estate agent to handle your short sale, you will most likely have an answer sooner. Although technically your short sale agent cannot go into the bank and demand they hurry up, they are able to speed things along once the BPO has been processed and the negotiation is taking place. The negotiation process can take around 45 days to complete; with a professional and experienced Wisconsin short sale agent, you can expect this to happen a lot faster.

If you are undergoing a short sale then you probably feel like the process is taking forever. It can be hard to keep your head up and continue on as if nothing is different but this is your best bet to succeeding in this situation and getting out ahead. Patience is of utmost importance when it comes to a Wisconsin short sale. And, in many cases, your patience will pay off in the end.

No home owner plans on foreclosure. They do not purchase a home thinking that there is the chance that, a few years down the road, they could lose it. However, the sad reality is that this is happening more often than ever before. With the financial crisis just behind us, we are still struggling to keep afloat and more Wisconsin homes are pending foreclosure every week. In fact, so far in 2009 there are over 30,000 filings for foreclosure across Wisconsin. If you happen to find yourself in this category, there are things you need to know about how to overcome this unfortunate fate and get back on top of things.

Avoiding WI Foreclosure Before it’s too Late

One of the biggest mistakes people make when it comes to foreclosure is that they avoid the current situation. The letters come, the payments are due and things just keep being pushed aside with the hope that it’s going to get better next month. Although it’s important to keep your hopes up, it’s also time to be realistic and make a plan of action.

The first thing you can try to do is speak to your lending company about forbearance or changing the terms of your loan. If you speak to them early and explain the situation, you may be able to hold off the legal actions and adjust your mortgage rate to suit your current financial situation. However, in many instances, the situation has progressed beyond this and the lender has already filed a Notice of Default.

Notice of Default and the WI Short Sale Alternative

Receiving that Notice of Default can feel like a ton of bricks being shoved in your throat. But you need to take a deep breath and understand that this burden can actually be avoided. You simply need to contact a WI real estate agent and discuss a short sale.

During a Wisconsin short sale, you are selling your home for less than what you owe on it. Although the banks do not want to do this, short sales are a better option for them than foreclosure and thus they are willing to negotiate short sales on homes.  A short sale in Wisconsin will not help you profit from your home but it will ensure that you get out of a very messy situation and on with your life. Furthermore, when you are back on your feet, a short sale will allow you to start again without worrying about poor credit that comes with a foreclosure.

When it comes to the short sale process, it’s important that you act fast. A short sale transaction is extremely complicated and due to the frequency of them, it can take up to 100 days or more for a lending company to approve the short sale transactions. That’s why the sooner you contact a professional WI short sale agent; the better it is for everyone involved. Furthermore, the quicker you act the better chance you have of getting the short sale transaction approved and avoiding the dreaded foreclosure.

In 2008 Wisconsin had over 13,000 filings for foreclosure, which is up more than 62% from 2007 and ranks Wisconsin as the 28^th highest in the nation for foreclosure. Already in 2009 there are over 30,000 foreclosure filings and it is estimated that one in every 128 Wisconsin homes will succumb to foreclosure status. So why is this happening? Why are Wisconsin families being forced to foreclose their home? And, is there any other option?

What Happened? Reasons for Foreclosure in Wisconsin

Some of the most common reasons for foreclosure are as follows:

Job loss/ unexpected unemployment – in September 2009, the unemployment rate in Wisconsin was at 7.7% which is a slight increase from last month but nothing too substantial. Furthermore, compared to the 4.2% unemployment rate of last year, these numbers suggest there are still several challenges that workers face. What this means is that, although the global economic recession appears to be slowing down, jobs are actually not picking up and more and more Wisconsinites are finding that their temporary unemployment status is turning permanent.

Sudden illness or medical emergency – another common reason that more people are losing their homes to foreclosure is because they are struggling to overcome an illness or medical emergency and simply cannot pay for the bills. In 2007 there were over 4 million cases of injuries at work that cause problems in the financial sector. If you or the main income earner all of a sudden cannot work, then you could easily fall behind on your payments and end up in trouble with your mortgage.

Divorce / Loss of second income – 1 in every 2 marriages end in divorce and many more people split up every day causing not only a problem in their emotional life but also in their financial life. The reason is because, with a separation also comes a split in income. Furthermore, divorce proceedings can be extremely expensive and thus many people are struggling with even more debt once they have ended their marriage.

Unexpected Home Maintenance – another problem that Wisconsin families face is that their home is suddenly damaged. Although most families will have insurance that will cover accidents, there are certain problems that will need your out-of-pocket expenses. The fridge could break; the heating could crack down or the roof could leak. All of a sudden you are spending your monthly paycheck on home repairs instead of on the mortgage.

The Short Sale in Wisconsin Option

One of the best options to avoid foreclosure is to opt for a Wisconsin short sale. A short sale is a real estate transaction that occurs when the banks agree to take an offer on a house that is less than what you currently owe. They are willing to ignore the additional money you owe and you are able to sell your house without worrying about that dreaded ‘foreclosure’ status on your credit report. If you are having trouble making your mortgage payments, regardless of what the reasons are, you do not have to commit to the foreclosure status. A WI short sale is an option that just might work for you.

If you having trouble keeping up with the mortgage payments and could potentially lose your home to foreclosure, then it might seem like a smart move to sell your home to a family member. That way, they can get a good deal on your home, you can continue to live there and pay cheap rent, and, once you are back on your feet, you can purchase the home back from them without worrying about the rising market price. It sounds like the perfect solution right? However, unfortunately, in most instances, it will not work.

Problems with the Lending Company

One of the reasons why short selling to a family member will, in most instances not work is because short sales must be approved by your lending company. If your lending company discovers who the buyer is, they will not be too pleased in letting this happen. Why not? Well, first of all, because it could come off as fraud or a scam. After all, in a short sale, the lending company is not making any money – they are losing money on their investment – and thus they will not be too happy to know that you and your family could be benefiting from the transaction.

But what if it is an honest deal? Well, if this is the case, your best bet is to speak to a certified Wisconsin short sale agent who can help determine if this will work in your case. In some instances, for example, if the offer is high enough that the banks cannot say no, then the short sale transaction may be accepted. However, you will need to get professional help in order to avoid being denied, or worse, being accused of real estate fraud.

Emotional Problems with Short Sales in WI

Another thing to consider when it comes to short selling a home to a family member is that often the entire burden of the home is passed on to your family. This does not only include the new mortgage, but also any additional taxes and fees that you, the short sale seller, has been able to pass on. There is a lot more to consider in a Wisconsin short sale than just the price of the house.

Finally, although family should always come first, it’s never a good idea to mix family with business. And, when you are dealing with real estate, it can often get messy when these two combine. What happens if your family has trouble keeping up to the mortgage? What happens if you cannot afford the rent or if something major goes wrong and there is a fight about who is supposed to pay for the cost of the damage? The real estate game is a slippery one and can often cause family feuds that could easily be avoided.

Furthermore, there is nothing worse than feeling like you owe your parents or your brother something huge. Holidays are often put on hold in order to make additional household payments and there is always a feeling of pressure and guilt, no matter how relaxed you think the transaction is. When you are paying a loan back to the bank, there is no emotional connection and thus, you often feel freer to spend your money as you see fit. With family and a WI short sale, this is not the case anymore.

In today’s fast paced world, we all want everything now! Although there are only a few things in life we have to wait for, these things are often worth the wait. This is the case when it comes to real estate transactions. Although some real estate transactions will go off without a hitch and the contracts can be signed within a matter of days, this is usually not the case when it comes to Wisconsin short sale transactions.

What can you expect when it comes to time and a short sale?

On average, WI short sales will take anywhere from 60-120 days to complete. However, this is a rough estimate and, as more and more families look for short sales as an option, you can expect the wait period to continue to lengthen.

Reasons for the Lengthy Short Sale Transaction Period

So what’s taking so long? One of the reasons you can expect a long wait period when it comes to Wisconsin short sales is simply because of the current real estate market. According to the National Association of Realtors, over 50% of properties sold are short sale or REO properties. Furthermore, in Wisconsin alone, there are over 30,000 foreclosed filings on homes, many of which could qualify for a short sale. What this means from a lending point of view is that there are so many different short sale packages coming in each day that is can take a while to get to all of them. For the short sale seller and the short sale buyer, there is nothing to do but wait.

Another reason for the long wait in Wisconsin short sale transactions is because there is a lot of paperwork and organization involved in the process. And, finally, short sales take so long because there are so many steps involved. Below is a timeline for the typical short sale process in WI.

A Break Down of the Short Sale Transaction Timeline

First of all, you will need to get authorization on file with the lender. This can take around 2 days. Next you and your real estate short sale agent will need to compile all the short sale documentation which can take anywhere from 7 to 14 days. You can expect another 3 to 7 days for the short sale package to be filed by the lender and another 10 to 14 days for your package to be assigned to a negotiator in the lending company.  These are only the first steps involved.

Next the BPO will need to be ordered and scheduled which will take anywhere from 19 to 30 days to do. The BPO will need to be sent to the negotiator who will then be in touch with the short sale agent about the negotiation or approval of the short sale. All of this can take between 30 to 45 days to complete.  And thus, your grand total for the transaction process is between 70 and 107 days to complete the entire process.

You will notice that most of the waiting time occurs due to the lending company, BPO and negotiation process and, unfortunately, there really is no way to speed this up. It all depends of the efficiently and the availability of your lending company at the time of your short sale transaction.

One of the most common questions that families have when it comes to the short sale Wisconsin process is what they should do with their mortgage in the meantime. A WI short sale transaction can take anywhere from 3 to 4 months to actually complete. Should you be making your mortgage payments or should you just stop? This is not something that can be answered easily because there is no right answer set in stone. However, it’s important to understand what is at stake if you do completely stop with your mortgage payments during a WI short sale transaction and what this could mean in the long run.

For many short sale sellers the choice whether to continue with the payments is not even a viable one as the debt and the bills are simply too much without even trying to make the payments. Other short sale sellers may have a little extra money that could go towards the mortgage- the question is whether or not it should.

Saving your Money during a Short Sale WI Process

The first reason why stopping payments on your current mortgage could be a good move is because you can put that money towards something else, such as the funds to move elsewhere or pay for a deposit on a rental home. If you have credit card debt or other large debts that are damaging your credit, you could also put the acquired mortgage money towards lowering these debts.

Accepting Defeat during a Wisconsin Short Sale

Another reason why many people stop paying the mortgage when negotiating a short sale is simply because it is not their house anymore. If they are struggling to make payments and have been warned that foreclosure is in the near future, it may seem fruitless to even try. If the short sale does not go through and you know that foreclosure is the only other alternative, it might be best to save your money to start over again.

Providing Incentive for the Banks to Make a Decision

Finally, those who are in true default and are not paying their mortgage may take the top priority spots in the lending company lineup and thus, the short sale transaction may be sped up. By not paying the mortgage, you are actually speeding up your short sale in WI transaction and providing the lender with an incentive to accept the short sale offer. However, while you are not paying your mortgage, you will be incurring a poor credit rating in the process.

Keep in mind that choosing to continue to make payments during a short sale or stopping these payments  is something that every individual must decide on his own and will come down to your personal financial situation and what is best for you. Understanding the pros and cons on each side will allow you to make the right decision. To see a list of the pros to short selling, see the blog titled Continuing Payments When Negotiating a WI Short Sale. And, keep in mind that there are always two sides to every decision in life. The big question is – which is right for you?

When it comes to whether or not you should continue with your mortgage payments during the process of a short sale, there is no clear right or wrong answer. No one can tell you what you should do and no one, except perhaps a lawyer, should offer you this legal advice. Instead, outlined below are some of the advantages to keeping up with your mortgage payments during a Wisconsin short sale transaction. See next week’s blog – Stopping Payments When Negotiating a WI Short Sale – to read the other side of the story and make a more informed decision.

First of all, not everyone can afford to make this choice. It is important that you do not let other parts of your life suffer when trying to continue with your mortgage payments during a WI short sale. If you can, make sure your family is supplied with food, clothing and the basic living essentials. Make sure the electricity is paid, that the car insurance is up to date and that there is fuel in the car to get to work. If there is money left over, then putting it towards your mortgage can offer some serious advantages in the long run. They are outlined below:

Keeping Your Credit and Future in Order during a Wisconsin Short Sale

One of the biggest advantages to continuing to make payments is that you will be able to qualify to purchase a new home right away. If you have kept your payments up to date and have not been classified as a ‘delinquent’ then you will be able to immediately buy another home after a short sale. For some families, this can be a big incentive to continue with their payments.

Another big advantage to continuing your payment is that you will be able to protect your credit rating. Every time you miss a mortgage payment, your credit rating will go down which can result in higher interest rates and stricter loan terms in the future. Although undergoing a short sale in WI will drop your FICO rating a little bit, it will not nearly be as substantial if you continue with your payments during the waiting process.

Peace of Mind in Continuing Payments during a WI Short Sale

Although this is not true with everyone, many people find that continuing with their mortgage payments gives them a peace of mind and a sense of pride that they have not completely given up and accepted defeat. Understand that in a short sale, you are not accepting defeat- you are simply choosing the better alternative to a foreclosure. However, for some, this payment will help them sleep better at night.

Finally, perhaps the biggest advantage of continuing your mortgage payment is that, if the short sale is not accepted by your lending company, you do not have to necessarily give up your home. Furthermore, if the deal falls through, you can continue to list your home and hope for another short sale offer in the future without worrying about the lending company foreclosing right away.