subject: 5 Most Recent Foreclosure And Loan Modification Developments [print this page] 1. FNMA LEASE BACK PROGRAM FOR FORECLOSED HOMEOWNERS
Unfortunately many can"t qualify for a loan modification meaning foreclosure may be the only alternative. This can be a very emotional situation, especially when having to move out the home you have owned into a rental property.
This means upheaval in schools, transportation, and the issue of how to get approved for a lease when your credit is probably shot.
FNMA saw this situation and someone made a logical and "make sense" decision on how to keep a family in their home as a renter. Its nick names D4L (deed for lease) and considered a modification under guidelines 09-33.
First understand the servicer of your loan, who may not be the actual owner of your loan, must pre-screen the property to see if it meets FNMA guidelines and their own guidelines. For servicers, the D4L process follows the standard Deed in Lieu of Foreclosure process. Our book explains more about this process, but for the purpose of explaining this program you should know the lender has a process a paperwork they will provide you that put the title of the home in their name and then puts a rental agreement in place with you.
So the servicer must perform a prescreening of the borrower and the type of loan on the home.
If the borrower and loan type pass the prescreening, the servicer will ask the homeowner (soon to be renter) if he or she is interested in leasing the property. Our suggestion is to bring it up to the servicer as they are probably not anxious to enter into another negotiation with you and may not be up to speed on the program as it was just announced in Nov of 2009.
If the homeowner has a tenant occupying the property rather than occupying it themselves, the servicer will ask the homeowner if the tenant might be interested in continuing to lease the property.
If the homeowner is interested, or believes the tenant might be interested, the servicer at that point should:
Provide a copy of the Deed-for-Lease Instructions for Borrowers to the homeowner; and
Email the completed Deed-for-Lease Program Referral Form (Form 187) to Fannie Mae.
A property management company (property manager)""designated by Fannie Mae""will handle the specific details of the lease and negotiate directly with the homeowner.
Fannie Mae will be the only entity that communicates with the property manager.
Turnaround time for a property manager to review and approve or disapprove a lease is 10 business days following initial homeowner consent to a referral to a property manager
Here are the qualifications for the D4L program:
1.The mortgage loan is a first lien secured by a one- to four-unit property. All property types are eligible. Second lien mortgage loans are not eligible.
2.The mortgage loan cannot be guaranteed or insured by a federal agency (FHA, HUD, VA, or Rural Development).
3.The borrower resides in the property as a primary residence or has leased the property to a tenant who uses the property as a primary residence. Second homes or vacation homes are not eligible.
4.At least three payments have been made since the loan was put in place or since the last modification.
5.At the time of the referral to Fannie Mae for the D4L, the borrower is not 12 or more payments past due on the mortgage loan.
6.The borrower is not involved in an active bankruptcy proceeding and is not a party to litigation involving the subject property or the mortgage loan.
7.Marketable title can be conveyed (a title insurance policy is required).
8.If there are subordinate liens (2nd, 3rd mortgage) secured against the subject property, lien releases can be obtained.
9.The occupant of the property (i.e., the borrower or the borrower"s tenant) has verifiable income. Occupants with no source of income are not eligible.
10.The occupant must make a gross income of at least 31% of the market rents.
The owner of the note (servicer/lender/bank/FNMA/FNMC) doesn"t have to do this however FNMA has created the program to help both the lender and the borrower. It may be more beneficial to the lender to keep you in the house until values stabilize and not take a huge loss in a foreclosure sale.
It also provides you the opportunity to make an organized move with your family and job.
2.HOW TO PASS THE NPV TEST
NPV stands for Net Present Value and is becoming the center piece of a loan modification application and proposal. For this reason it is important to justify the current value of one"s home when applying for a loan modification. (we go into how and where in our ebook)
NPV is used when a lender needs to make a financial decision. "It's a way for financial people to express a decision in today's dollars," says Brent Lippman, CEO of Response Analytics, a financial modeling company.
Not many people know that the federal government's home value projections are updated at the beginning of each quarter and not shared with the public. The interesting part of this is that these valuations are made available to your lender.
There's a slim chance that the numbers could change in your favor from one quarter to the next, so if you are turned down for a mortgage modification, you might try applying again the following quarter (if it's not too late).
Your mortgage servicers or your lender use an NPV test to decide which of the following actions are more profitable (or less unprofitable) for them in the long run:
"Modify the loan and accept lower monthly payments from you. This is the choice if they see they stand to loose a predetermined amount of money if they don"t let you stay in the home.
"Not modifying the mortgage and possibly tipping the borrower into foreclosure.
So basically the more upside down you are the more at risk they are and when reviewing the depressed value along with your financial hardship they are more prone to make the modification.
For the homeowner, the decision seems like a no-brainer: Modify the mortgage so it's affordable and the loan won't go into foreclosure. But a lot of modified mortgages wind up in default again, despite the borrowers' intentions. So the NPV formula includes an estimate for the likelihood that the mortgage will redefault -- that is, that it will end up in foreclosure, anyway, even after a modification.
You are probably not thinking this way but remember, your lender is. They ask, will the borrower end up here again next year? and if so how much more will they stand to loose?
What can homeowners do?
The NPV formula contains secret ingredients, so it's hard for delinquent borrowers to influence the results when seeking a loan modification. But there are a couple of things you can do.
First, which we discuss in our eBook, If you are determined to remain in the home, say so. Make it loud and clear that you don't want to lose your home, and explain why. Maybe you live near your aging parents, who need your care-giving, or you would be intensely embarrassed by foreclosure. Enlist the aid of a nonprofit housing counseling agency to craft a hardship letter or just buy our book and use it to draft your letter.
And as we point out in our book you can get very current home values in your very neighborhood, which could be better or worse than the government"s reports. Your lend will take those into consideration when negotiating your modification.
Keep in mind the NPV calculation reflects REDEFAULT MODIFICATIONS. This means they are trying to calculate whether or not you"ll default if they grant you the modification. This is why we encourage you to be very thorough with your modification application and proposal. In our book we show you how to complete the application with all these details.
The NPV calculation makes guesses about several things:
"How many months are likely to pass, on average, before a redefault.
"How likely the borrower is to catch up on the payments if the loan isn't modified (the "self-cure rate").
"How much the home is worth now compared to the last quarter
"How much the home will be worth a year from now. (how they could guess that is beyond us)
"How much it would cost -- from legal fees to utilities -- to foreclose and take possession of the house.
"How much the house would fetch in a foreclosure sale, using a formula that the government calls the REO (real estate owned) discount, which has been running at them getting 42% of their loan amount.
Again this is why we encourage the proposal to them to point out the decline in value vs. what is owed but your motivation is stronger than your financial loss and saves them a huge financial loss. Our book provides numerous examples and fill-in-the-blank worksheets that allows you to show them this in a clear concise manner.
3.Effects on your credit report from a short sale or foreclosure
Sellers may wonder whether doing a short sale could affect their credit less than completing a foreclosure, and whether there are other advantages between the two. While in foreclosure, and depending on state laws, a seller could possibly stay in the property, essentially rent free, for four months to a year before being forced to vacate. But that fact alone does not mean a foreclosure is better.
We discuss both these topics in our book under "Alternatives to loan Modification".
For years, as mortgage brokers, we were keenly aware that 30 day lates vs. 90 days lates affected scores within certain ranges. Then this new scenario came along where we were dealing with short sales and foreclosures more than just mortgage lates.
Understand that a fico score is derived from approximately 40 fields of information, none of which is based on income or job, by the way. Each field has a number assigned to it with an explanation. For instance we used to see #10 a lot which meant a lot of credit inquiries.
Right now a short sale carries a number of "Score Factor Code #22, which states there's no credit score advantage for a delinquent borrower on a short sale over a foreclosure."
So you"re either hit by a bus or a train (credit wise) and our sources tell us you can expect around a 200 point hit. Ironically the better your credit was the worse the worse it will be. Just the way the secret FICO matrix works.
When our credit repair people requested written information about changes from Fair Isaccs in San Jose, which is where FICO came from, they said they were "reviewing" the matrix however right now a short sale is reported as a debt paid as less than agreed and treated with the same ding as a foreclosure.
So don"t be misled by your lender or anyone else that a short sale is better than a foreclosure when it comes to your score. In fact in my opinion in some cases, which we discuss in the book, it might be better to use those four or five house payments you don"t have to make while in foreclosure (that"s right it"s the law) to negotiate credit card debt to a fraction of their balance and when the dust settles you save thousands and start rebuilding your credit with a credit repair program we highly recommend.
4.FHA ANNOUNCES YOU CAN BUY IMMEDIATELY AFTER YOUR SHORT SALE !!
In our book we discuss what is called the "short refinance". This is where a mortgage broker gets your preapproved for your home"s CURRENT value and you go to your lender and offer to refinance your current loan, which is much higher than the value and literally buy your home back for it"s current value.
This has met with little success as it very hard to get the lender to accept it, odd as that seems as they could only get that much at a foreclosure or short sale, but it"s their mentality right now and they aren"t going to reduce your loan amount either.
Some agents say the good news for short sale sellers is the wait is much shorter before buying another home, and FHA guidelines in 2008 adopted new procedures. Can a seller buy again in less than two years? Not really, say most mortgage brokers and Realtors. They say it"s an utter myth that a consumer 'can buy again in about 18 months at a good interest rate.
THIS IS SIMPLY NOT TRUE! YOU CAN BUY THE DAY AFTER YOUR SHORT SALE CLOSES!!
FHA guidelines allow a seller to immediately apply for a new loan to buy another home if that seller kept the payments current, had no delinquencies exceeding 30 days and did not agree to repay the debt relief. Moreover, it's the late payments that affect your credit report, not the short sale, so your credit is still pristine and you can go out and take advantage of buying somebody else"s short sale and getting a loan and a home that is affordable and what you and your family is accustomed to.
5.HAMP UPDATE December 16, 2009
Critical Home Affordable Modification Program Waiver Granted to Participating Servicers
Effective 12/16/09, a new critical Home Affordable Modification Program (HAMP) Waiver is granted to participating servicers, as detailed below.
Permanent HAMP Waiver for Elimination of the 25% Trial Period Restart Rule #20091203 Supplemental Directive 09-01 (issued April 6, 2009) required borrowers to be reevaluated for a HAMP trial period if their verified income (as evidenced by the borrower's documentation) exceeded the initial income information used by the servicer to place the borrower in the trial period by more than 25%. The borrower would be reevaluated based on the program eligibility and underwriting requirements and, if eligible, would have to restart the trial period.
With the issuance of this waiver, borrowers are no longer required to restart the trial period. The trial period payments would not be adjusted, but the permanent modification terms would be based on the borrower's higher verified income.
Timing:
Original Trial Periods: Effective immediately for all original trial periods existing on/after 12/16/09.
Restarted Trial Periods: Effective immediately you can apply this waiver retroactively to all borrowers whose trial periods have been restarted based on the original guidance provided in 09-01. Therefore, a borrower who is currently in a restarted trial period can be immediately converted to a permanent modification if they have made at least three (or four, if required) trial period payments under their combined original and restarted trial periods and is otherwise eligible for a HAMP modification. (Remember, permanent modification terms must be based on the higher verified income.)
HAMP Reporting System (Treasury system of record) Servicers are required to follow these reporting requirements when applying the waiver to original and restarted trial periods:
Trial periods that have restarted but have not yet been resubmitted to the HAMP Reporting System -- send an official loan setup record with new loan terms (based upon the revised income) and a trial period length based upon the Official (modification) Effective Date minus the First Trial Payment Due Date. For example, if the effective date of the modification is January 1 and the borrower's original First Trial Payment Due Date was July 1, then the length of trial period would be 6 months.
Trial periods that have restarted and been resubmitted to the HAMP Reporting System (retroactive application of the waiver) require a two step process to reflect the number of months between the modification effective date and the First Trial Payment Due Date.
1. First, you must send a trial loan setup record to change the First Trial Payment Due Date back to its original date and a trial period length based upon the Official (modification) Effective Date minus the Original First Trial Payment Due Date.
2. You must then send an official loan setup record to change the trial modification to official. The official loan setup record should reflect the same First Trial Payment Due Date, Trial Period Length, Official (modification) Effective Date, and new loan terms based upon the revised income
by: Greg Francis
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