NEW YORK (New York Times) – April 5th will mark the beginning of a new program by the Obama administration intended to end the foreclosure crisis — one that will pay homeowners to sell their homes.
The program will allow owners to sell their homes for less than they owe and give them cash to expedite the process.
Hundreds of thousands of delinquent borrowers will be encouraged to sell their houses through short sales, in which properties are sold for less than the balance of the mortgage.
The new program will give the servicing bank $1,000, and another $1,000 may go toward a second loan, if one exists. The distressed homeowners will also receive $1,500 in relocation assistance.
Borrowers could suffer less damage to their credit ratings under the new program, and they will receive the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

WASHINGTON (Associated Press) – After one year of activity, the government’s mortgage relief plan has helped about 12 percent of borrowers who signed up for the program.

 According to the Treasury Department, about 116,000 homeowners had completed the application process as of last month and are making permanently reduced loan payments, compared with over one million homeowners who began the process.

 Over 61,000 homeowners have dropped out of the program either because they failed to make payments or did not return the necessary paperwork.

 There have been calls recently for a major overhaul of the program, particularly for the government to further encourage banks to cut borrowers’ principle balances on their primary loans. Nearly one in three homeowners with a mortgage owes more to the bank than their property is worth, according to Moody’s Economy.com.

Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.

1.  Check for and correct errors in your credit report.  Mistakes happen, and you could be paying for someone else’s poor financial management.

2.  Pay down credit card bills.  If possible, pay off the entire balance every month.  However, transferring credit card debt from one card to another could lower your score. 

3.  Don’t charge your credit card to the maximum limit.

4.  Wait 12 months after credit difficulties to apply for a mortgage.  You’re penalized less for problems after a year.

5.  Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved.  The amounts will add to your debt.

6.  Don’t open new credit card accounts before applying for a mortgage.  Having too much available credit can lower your score.

7.  Shop for mortgage rates all at once.  Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquirey if submitted over a short period of time.

8.  Avoid finance companies.  Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management. 

This information is copywrited by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation.  To obtain a complete copy of the publication, “Knowing and Understanding Your Credit,” visit http://www.homebuyingguide.org.  Reprinted from REALTOR Magazine Online by permission of the National Association of REALTORS.

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The Home Affordable Foreclosure Alternative Program (HAFA) will be providing short sale guidelines for loans not owned or guaranteed by Fannie Mae and or Freddie Mac starting in April 2009.  For the property to be eligible it must be the borrower’s principle residence, first lien mortgage originated on or before January 1, 2009, and the mortgage is delinquent or will be going delinquent in the foreseeable future.  The current unpaid principal balance must be equal to or less than $729,750.  The borrower’s total monthly mortgage payment has to exceed 31% of the borrower’s gross income.  Fannie Mae and Freddie Mac are expected to come up with their own guidelines soon.

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I have received a lot of phone calls lately about listing short sales.  I am currently getting my distressed property certification and short sale certifications because I am seeing such a need for them in this market.  I have taken short sale listings and continue to do so, but they are not easy.  Buyers need to understand short sales are time consuming and Sellers need to understand that the road is not without bumps at this time.  However, new legislation coming soon is going to streamline the process and help lenders to get through the process more quickly which will make buyers, sellers, Realtors, and banks happy!

As lenders adopt new federal guidelines for short sells, they will become less frustrating for everyone involved.  The short sale process will be standardized to some degree in 2009.  Lenders have the option to begin implimenting the new guidelines now, but they do not take effect until April of 2009.  These new short sale guidelines are part of the government’s new Home Affordable Foreclosure Alternative Program, known as HAFA.  This is part of President Obama’s Home Affordable Modification Program.  These new HAFA guidelines are voluntary, but major banks like Bank of America and Wells Fargo are going to participate.  This will hopefully clear up some of the confusion between lenders, sellers, and Realtors about short sales and create somewhat of a roadmap for the three to work together to get the property sold. 

Because of HAFA, lenders will finally have a financial incentive to get these deals completed in a timely manner, which has been a huge problem until now.  The guidelines will provide standardized forms so there’s no confusion between the real estate industry about what the bank is expecting in the form of paper work.  It will include standardized time lines for getting an answer back to the buyer and seller, standardized procedures, and more.  Won’t it be great to have preapproved short sale terms prior to the property  being listed?  My sellers and buyers are joyful about that!!   

As with any new guidelines, they will take months to work out the details.  But this new process for short sales is the beginning to making short sales more successful for buyers and sellers.

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