Posts Tagged ‘Short (finance)’

HUD nixes dual agency on FHA short sales

hudFHA short sales are slow. Very slow.

The thing about short sales is that they are slow going. For most people, when you want something, you want it now. And when you write an offer on a home and have to wait four, six, twelve, or even eighteen months to close, your interest begins to wane.

FHA (Federal Housing Administration) short sales have long been exceedingly slow going and frustrating for home-buyers and sellers alike. You may recall that the Department of Housing and Urban Development (HUD) sets the guidelines for processing short sales for sellers with FHA loans. In my experience, the main reason that these short sales have been slower than others is because HUD requires sellers, buyers, and agents to jump through more hoops (complete more milestones) before receiving short sale approval. For some sellers, this may mean applying for and getting declined for a loan modification prior to beginning the short sale process.

Benefits of the FHA Short Sale

On July 9, 2013, HUD released Mortgagee Letter 2013-23, a letter that appeared to contain good news for short sale sellers and their agents. Effective on October 1, 2013, the FHA short sale will be “streamlined” for many distressed borrowers.

The highlights of the Mortgagee Letter include the following positive changes to the FHA short sale process:

  1. Imminent Default – Certain borrowers do not need to be 30 days behind on mortgage payments to begin the FHA short sale process, just as long as they can demonstrate hardship.
  2. Reduced Documentation – There is now something called streamlined PFS (pre-foreclosure sale) for borrowers that meet certain guidelines.
  3. Up to $3,000 Financial Incentive – Owner-occupant borrowers who successfully sell their properties are entitled to a consideration of up to $3,000 (terms and conditions apply).

Read Between the Lines

Mortgagee Letter 2013-23 is 8 pages long. While the above three positive changes appeared to be the highlights, there is one big lowlight (if there is such a thing).  Buried at the top of page 8 is the following sentence:

“No party that is a signatory on the sales contract, including addenda, can serve in more than one capacity. To meet PFS Addendum requirements, brokers and their agents may only represent the buyer or the seller, but not both parties”

This particular phrase has agents in an uproar. Everyone knows that sometimes a single agent representing both sides of a real estate transaction may not be a good thing. But, what about two agents in the same brokerage? HUD is now going to prohibit that form of dual agency.

In addition to agent dissatisfaction, this sentence also dissatisfied the National Association of Realtors® President Gary Thomas.  In a letter to the Assistant Secretary for Housing, Thomas writes that this policy may minimize the opportunity for sale of many homes in certain parts of the United States. That’s because single brokerages with hundreds of agents under one license dominate in certain areas. And, if none of those agents (all under the same broker) are permitted to bring a ready, willing, and able buyer to the property, how will the property get sold?

Thomas also states that he understands that this HUD policy may have been enacted in order to avoid fraud, particularly problems where pocket listings may net HUD a little bit less money. He points out that Fannie Mae has enacted a more reasonable policy that requires that all Fannie Mae short sales be placed on the MLS for a minimum of five days, thus assuring that all properties are on an open market. Thomas urged HUD to reconsider their policy and adopt the Fannie Mae policy instead.

Depending upon where you live and where you sell real estate, the new HUD short sale policy and all of its associated drama may not impact you at all. But, if you are an agent listing and selling short sales, you’ll want to know what your in for—the improvements to the FHA short sale policy on October 1, and the bad news associated with it.

Five mortgage servicers have provided over 300,000 borrowers with some form of mortgage relief as part of a settlement agreement, according to a report from settlement monitor Joseph A. Smith, Jr.

Bank of America, Chase, Citi, Wells Fargo, and Ally reached a $25 billion mortgage settlement with state and federal officials in February 2012 over foreclosure practices. The agreement requires the banks to provide $20 billion in relief, but the servicers are not always credited on a dollar-for-dollar basis.

Thus, the gross amount of relief actually provided will be higher than what is credited.

As of September 30, 2012, banks reported they have provided $26.11 billion in actual consumer relief, which represents a value of $84,385 for each assisted borrower, according to the monitor.

“The relief the banks have reported is encouraging,” said Smith in a release. “But it is important to remember that no obligations will be met until I have reviewed, confirmed and credited them.”

The report explained some principal forgiveness on loans both owned and serviced by a servicer is credited on a dollar-for-dollar basis, but forbearance activities provide a credit of 5 cents for every dollar.

Smith added the information provided in the report “cannot be used to evaluate progress toward the banks’ $20 billion obligation” since it represents the gross amount.

While servicers can receive credit through a variety of forms of relief, at least 60 percent must be through first and second lien principal reduction modifications and no more than 10 percent can be deficiency waivers.

Servicers also have three years to meet the minimum relief requirements, but they are being encouraged to offer relief sooner through additional credit. If servicers provide first or second lien principal reductions or provide credited refinancing activities, they receive an additional 25 percent credit if the relief is completed by March 1, 2012.

Bank of America recently announced that it anticipates fulfilling consumer relief requirements in the first year.

If servicers don’t complete their requirements within three years, they will pay 125 or 140 percent of their unmet commitment amount.

Out of the $26.11 billion, $2.55 billion is from principal writedowns through first lien modifications, while $2.77 billion comes from second lien forgiveness or modifications. The majority came from short sales, $13.13 billion. Another $1.44 billion went towards refinancing.

As part of the agreement, servicers also had to implement more than 300 servicing standards by October 3.

Consumer relief obligations under settlement
Ally $200 million
Bank of America $8.5 billion
Chase $4.2 billion
Citi $1.7 billion
Wells Fargo $4.3 billion

Types of relief servicers can offer
-First and second lien modifications
-Enhanced borrower transitional funds
-Facilitation of short sales
-Deficiency waivers
-Forbearance for unemployed borrowers
-Anti-blight activities
-Benefits for members of the armed services
Refinancing programs