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NEW SHORT SALE RULES

Short sales have gone from being the bulk of our market to being somewhat rare. However, there are still some homeowners out there that may be considering a short sale. Not all short sales are the same. Each lender will have their own guidelines and rules. If your lender participates in the government HAFA program, there are some new rules that are very interesting.

 

When HAFA first started they would pay $6,000 to the 2nd lender. Then they upped it to $8,500. Under their new rules they will pay up to $12,000 to a 2nd lender. This should help many short sales that are “stuck” because the 2nd lender wants more than the first lender would give them.

 

The next issue is in regards to the homeowner getting money at close of escrow as an incentive and/or for relocation expenses. At first almost no lenders would allow short sale homeowners to receive any funds at closing. But then some homeowners figured out that they may be better off to just sit in the home and live rent-free for months and months and maybe even have the lender pay them “cash for keys” after foreclosure. HAFA came out with a $3,000 relocation incentive to the homeowner for a while to solve this problem. Under their new rules they’ve increased that to where the occupant (whether the homeowner or tenant) could be eligible for up to $10,000 in relocation expenses. I just got a short sale approved where the homeowner is getting $10,000 for relocation and $5,000 as a further incentive to do the short sale. (Please note that I’m not advocating whether this is a “good” or “bad” use of our tax dollars or whether this is the “right” thing to do for some borrowers. Just passing on the info so you are aware.)

VA/FHA Short Sale Wrinkle

“Yes” or “No.” That’s how I like questions answered. That’s also how I’d LIKE to answer questions. But so many times when someone asks me a question, I have to say, “Well, it depends…” I’m sure my clients find it incredibly frustrating when I do that, but the reason is not that I don’t WANT to answer the question, it’s just that it really DOES depend on a large number of variables and educated guesses.

For example, for years we had to tell our short sale sellers that if their short sale approval letter didn’t contain “full satisfaction” language that their lender may be able to pursue them for the deficiency after the short sale. But then last year California passed a law that said that in nearly all short sales, the lender is forbidden from pursuing you for the deficiency, no matter what the approval letter said. And there was much rejoicing in the land!

But I’ve recently discovered a new wrinkle in regards to VA and FHA loans. These are both Federal programs. So while the State of California passed a law saying that THEY forbid lenders from pursuing you, there are several legal precedents where Federal law trumps State law. Rut-roh… But then what if your lender issues an approval letter that states they are giving your full satisfaction? Well, VA and FHA are not your lender, they are insuring or guaranteeing the loan. So now the question becomes whether VA or FHA can come after you for their losses? Note that this may apply no matter how they had losses, so this may apply in a foreclosure, too. If you are considering a short sale or foreclosure and you have an FHA or VA loan, be sure to have an attorney review your original loan documents and get their opinion. I AM NOT A LEGAL EXPERT, PLEASE CONSULT AN ATTORNEY FOR SPECIFICS TO YOUR SITUATION.

If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

HAFA Update

HAFA is a very popular type of government short sale program. Since it was introduced a few years ago it has been changed multiple times. The most recent change are effective June 1, 2012 and I’ll describe them below.

Most importantly, the program was extended to Dec. 31, 2013. It had been set to expire at the end of 2012.

The next change is in regards to occupancy of the property. Prior to this, the owner must have resided in the home within the last 12 months. That requirement has now been removed. However, the property must have still have been the owner’s principal residence for at least two out of the last five years. In addition, they cannot have purchased another property within the previous 12 months.

They are still offering $3,000 as relocation assistance, however, the money will only be paid to the occupant of the property (owner or tenant) at the time the short sale is approved. This is probably the biggest change for some homeowners as the $3,000 incentive was the main reason they were pursuing the HAFA short sale. If they’ve already moved out, or put a tenant in the property, they may now be less interested in doing a HAFA short sale. There are other benefits to a short sale vs. a foreclosure, of course. But some people focus mostly on the relocation assistance money they may get as a primary motivator.

The other major change is that they are increasing the amount that can be paid to the second lender from $6,000 up to $8,500. This last change is the most welcome for me as it could help get more short sales approved if the second demands more than the $6,000.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Free loan mod/short sale seminar

Updated for 2012. New loan mod/short sale laws and incentives will be discussed along
with the following topics:

  • Who is a good
    candidate for a loan modification vs. a short sale?
  • Can lenders
    pursue you after a short sale, foreclosure or loan modification?
  • Impact on your
    credit score and waiting period to buy another home.
  • Which lenders may
    pay you up to $30,000 to do a short sale.
  • Discussion of the
    “1099 issue” and the two big exceptions to it.
  • How the
    expiration of the Mortgage Forgiveness Act at the end of 2012 affects you.

June 12th at 6 pm or 7:30 pm or June 16th at 10 am or Noon. All will be the same
one-hour presentation including time for Q&A.

Presented by: Brian Sharp, Certified Distressed Property Expert.

««« MUST R.S.V.P. TO RESERVE A SEAT «««

Phone:
925.998.9712  Email:
Brian@SharpHomesOnline.com

 

FREE LOAN MOD VS. SHORT SALE ANALYSIS

Are you having trouble making your payments? Are you not sure if you should even try a
loan mod or just give up and try a short sale? Are you confused as to what they even look
at to decide if they approve a loan mod or short sale? (Here’s a hint: It’s NOT the same
things!) Are you ready to just throw in the towel and “walk away”?

I can help… Over the last few years I’ve met with hundreds of local homeowners who
had the exact same questions. I have developed a spreadsheet that will analyze your
mortgage situation and compare it to your income. The end result is a pretty good guess
as to whether your bank will approve a loan mod and/or a short sale. If you’ve already
received a loan mod offer from your bank, it will also help you determine if you should
accept it, or reject it as “unaffordable” for you. If you haven’t received a loan mod offer,
it will generate a target number for what IS an affordable payment for your situatoin.
It will also help you determine if your monthly cash flow will improve by becoming a
renter or not (the answer may surprise you!).

For a free, no-obligation analysis of your situation, call me at (925) 998.9712, or send
an email at Brian@SharpHomesOnline.com. I will give you a list of the info I need,
and then I can send the analysis back to you. If you have questions on the results, I’ll be
happy to discuss them with you, but there is no obligation on your part.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

HOW TO CALCULATE DEBT RATIO

I’ve met with literally hundreds of distressed homeowners over the past few years. My #1 goal is to keep them in their home, if possible (and if it makes sense). The first thing I USED to ask them is if they can afford their payment. Many times they will shrug their shoulders and say, “Well, yeah, kind of.” I’ve found that most people have never really calculated their own debt ratio, so they really don’t know if they can afford it or not.
Your debt ratio is your housing expense divided by your monthly gross income. The government and most lenders use 31% as a guideline. 31% and below is considered “affordable.” Sounds simple enough, but let’s define what goes into that calculation. Your housing expense is your first mortgage payment, plus property taxes, homeowner’s insurance, plus any payments for mortgage insurance, HOA and then any 2nd or 3rd mortgages. (Do NOT include any house maintenance fees like utilities, landscaping, etc). Then for your gross income, put down all household income, and use the gross number (before taxes). If you are receiving tax-free income of some kind, then you have to “gross it up” so you are using the number as if you were paying taxes on it. For example, if you get $2,000, but no taxes are taken out, then divide by, say, .7 (we are adding back in what would have come out if taxes of 30% were being withheld). That would be $2,857.
Where this gets complicated is when you have an adjustable mortgage (ARM), negative-amortization, or interest-only loan (or any combination of these). For this situation I usually calculate several debt ratios. First, the debt ratio on your minimum payment, then what it would be after the ARM adjusts, and then I factor in making the payment a full-amortizing payment (one that reduces your principal balance each month). Or just call or email me and I can do this for you and email you back a printout.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

DEBT RATIOS PART II

Last week I told you how to calculate your own debt ratio (or you can send your info
to me and I’ll calculate it for you and send you back a worksheet). I explained that
where this gets tricky is when you have an interest-only and/or ARM loan because your
minimum payment may or may not even cover all the interest due or any principal. This
week I’ll tell you how three of the biggest lenders handle this situation when they are
considering you for a loan modification or short sale.

Here is a quote from one Chase loan mod negotiator, “When we calculate the proposed
ratio, it begins with a 30 year amortization on outstanding principal at current rate.
Compared to validated income, we then start backing off the interest rate down in ¼%
increments. On a HAMP situation if we get to 2% full PITI and still are over the 31%
housing ratio, then we start extending the amortization in 5 year increments up to a
maximum of 40 years. If we still aren’t at the 31% but within sight, we may then set
aside into a “special forbearance” enough principal to make the 31% payment to income
including PITI + HOA.”

For Bank of America, they weren’t as forthcoming with details, but a fairly highly-placed
executive told me that if someone has an interest-only loan, BofA will calculate their
payment based on it being principal-reducing for the purposes of calculating their debt
ratio.

For Wells Fargo, I couldn’t get a direct answer to my question, so I can’t give you their
official policy. But I’ve had MANY clients with interest-only and/or ARM loans with
Wells where they are using the minimum payment and saying, “You can afford to make
the minimum payment, so we don’t need to modify your loan.” In my mind, an interest-
only (or below-market ARM) is not the “real” payment, so I wish they would look at a
principal-reducing payment like Chase and BofA does. (If anyone from Wells wants to
correct me on this, I’m all ears and I will post your response if it needs clarification.)

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

CHECK YOUR NPV

I’ve had many local homeowners call me recently to say that after months of applying
for a loan mod, their lender just turned them down, and the reason they were given
was “negative NPV.” Leave it to our lending industry to make things even MORE
confusing, right when they should be being the most clear and transparent!

“NPV” stands for “Net Present Value” and it is the key number that your lender may look
at when considering whether or not to approve your loan mod request or short sale. The
short definition of NPV is the lender is trying to figure out if they’ll lose more money by
offering you a loan mod, short sale, or doing nothing and letting it foreclose. If your NPV
is negative, it means your lender thinks they’ll lose MORE money through a loan mod or
short sale than with a foreclosure. There are 33 different data points that your lender will
consider to come up with your NPV. Some of the points are value of the home, amount
you owe, your income, when the loan was originated, your payment, your current credit
score, etc. They take all that info, crunch their numbers, and then if the NPV is negative,
you are declined, if it is positive, then they will consider you for a loan mod or short sale.

The good news is that the government recently came out with a website where you can
check your own NPV. It is www.CheckMyNpv.com. The bad news is that the average
person is going to have a pretty difficult time coming up with all the data points they are
asking for, and if you don’t fill it out 100% completely, it won’t give you the number.
However, if you were recently turned down for a loan mod and they sent you the NPV
form, then you are in luck because it will have the data they used on it. You can take their
form, then go to the website and try it yourself if you think some of their numbers aren’t
correct to see if it would result in a different NPV calculation. Or call me and we can sit
together in my office and input the numbers together.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE
(6683). To search the MLS for free and view virtual tours of homes for sale, go to:
www.SharpHomesOnline.com. Sharp Realty

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Contact Us

  • Sharp Realty
  • 320 Fairview Ave.
  • Brentwood CA 94513
  • P: 925.240.6683
  • F: 925.524.2302
  • E: info@SharpHomesOnline.com
  • DRE# 01858431