FHA Announces Changes that will be Effective April 1st, 2012

Posted on March 9, 2012 by admin

FHA announced a few new underwriting guidelines last week that are going to have a significant negative impact on many home buyers.

These changes are effective with FHA loan applications on or after April 1st, 2012:

1)      Borrowers with individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or above $1,000 must resolve the accounts prior to closing (pay in full or set up a payment plan with 3 payments made prior to closing).

2)      If more than 3 months has passed since the most recent tax return was filed for a self-employed borrower, a year to date profit and loss statement is required to verify the borrowers income.

In addition, the following changes have announced and will be implemented on April 9th, 2012:

3)      FHA monthly MIP is increasing 10 basis points, to 1.25% of the mortgage balance annually (increases payment $8.33/month per $100,000 financed).

4)      FHA Up Front Mortgage Insurance (UFMIP) is increasing from 1% of the original loan balance to 1.75% of the original loan balance (adds $750 to the borrowers loan amount per $100,000 financed).

Lastly, FHA has proposed for seller concessions to be limited to the greater of 3% of the contract sales price or $6,000.  This change should be implemented in the next 45 days as well.

These changes, most notably how collection accounts are treated, will have a major impact on many of your clients’ ability to qualify for FHA financing.  Since these changes were announced, we have reviewed our active FHA pre-approvals and approximately 35% will be impacted.  For some, these changes will now require the clients to prepare a P&L, for others it means they will not qualify without paying off thousands of dollars of years old collections.

With a few weeks until this is fully implemented, there are a few steps to take to protect your current prospects and clients:

1)       All FHA buyers under short sale contract should formally apply for a mortgage and have their FHA Case # ordered before April 1st.

2)      Contact all buyer agents on your listings and make sure their buyers and lenders are prepared for these changes.

3)      Make sure all of your active buyers have spoken to a lender to determine if they will be impacted by these changes.

While these changes are both sudden and unwelcome, they are here whether we like it or not.  All we can do is educate our clients and be prepared when they are implemented.  I am here to help you and your clients through these challenging times.

Have a great week!

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How does a Previously Approved Short Sale Work?

Posted on March 8, 2012 by admin

A previously approved short sale is NOT a pre-approved short sale, and in some cases, the lender’s will nevertheless require the process to begin anew. However, with a previously approved short sale, some lenders will not require the process to begin completely anew (or will offer a more streamlined approval process), but more importantly, the parties will have the benefit of knowing what the lender is likely to accept the second time around, thus maximizing the chances of a successful closing prior to foreclosure.

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Study: We’re getting less friendly on Facebook

Posted on February 25, 2012 by admin

Whether it’s pruning friends lists, remov­ing unwanted comments or restricting access to their profiles, Americans are get­ting more privacy-savvy on social networks, a new report found.

The report released Fri­day by the Pew Internet & American Life Project found that people are managing their privacy settings and their online reputation more often than they did two years earlier. For example, 44 per­cent of respondents said in 2011 that they deleted com­ments from their profile on a social networking site. Only 36 percent said the same thing in 2009.

The findings come a day after the Obama admin­­istration called for stron­ger privacy protections for people who use the Internet, mobile devices and other technologies with increas­ingly sophisticated ways of tracking them. Pew’s find­ings suggest that people not only care about their pri­vacy online but that, given the tools, they will also try to manage it.

Along those lines is “pro­file pruning,” which Pew reports is on the rise. Near­ly two-thirds of people on social networks said last year that they had deleted friends, up from 56 percent in 2009. And more people are removing their names from photos than two years ago. This practice is espe­cially common on Facebook, where users can add names of their friends to photos they upload.

Among other findings:

Women are much more likely than men to restrict their profiles. Pew found that 67 percent of women set their profiles so that only their “friends” can see it. Only 48 percent of men did the same.

Think all that time in school taught you something? People with the highest lev­els of education reported having the most difficulty figuring out their privacy settings. That said, only 2 percent of social media users described privacy controls as “very difficult to man­age.”

The report found no significant differences in people’s basic privacy con­trols by age. In other words, younger people were just as likely to use privacy con­trols as older people. Sixty-­two percent (62%) of teens and 58 percent  of adults restricted access to their profiles to friends only.

Young adults were more likely than older people to delete unwanted comments. Fifty-six percent (56%) of social media users aged 18 to 29 said they have deleted com­ments that others have made on their profile, compared with 40 percent of those aged 30 to 49 and 34 percent of people aged 50 to 64.

Men are more likely to post something they later regret. Fifteen percent (15%) of male respondents said they posted something regretta­ble, compared with 8 percent of female respondents.

Possibly proving that with age comes wisdom, young adults were more like­ly to post something regret­table than their older coun­terparts. Fifteen percent of social network users aged 18 to 29 said they have posted something regrettable. Only 5 percent of people over 50 said the same thing.

Pew’s phone survey of 2,277 adults was conducted in April and May 2011. It had a margin of error of plus or minus 2 percentage points. The data about teens came from a separate phone sur­vey Pew conducted with teen­agers and their parents.

By Barbara Ortutay ~ The Associated Press

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Understand the Language of Distressed Properties

Posted on February 24, 2012 by admin

Bank-owned /real estate–owned (REO): Properties that have been taken back by the lender during the legal foreclosure proceeding to become an asset of the lender bank.

Broker price opinion (BPO): When the estimated value of a property is determined by a real estate broker or firm based on property characteristics, appropriate comparable properties, and market analysis.

Deed-in-lieu (DIL) of foreclosure: When borrowers can no longer make their mortgage payments, a DIL transfers ownership of a property to the lender, allowing the home owner to avoid foreclosure.

Distressed property: A property that is under a foreclosure order (pre-foreclosure), has undergone the foreclosure process, and is now an REO, or is being marketed as a short sale.(See lender-mediated properties.) Historically, this has also referred to properties in dilapidated condition.

Distressed sellers: Home owners in default on their mortgage or at risk of becoming late on their mortgage payments, due to financial hardship.

Forbearance: A reduction or suspension of loan payments as agreed upon by the lender for a predetermined period of time.

Foreclosure: The legal process in which a lender takes possession of a property as a result of a mortgage default by the owner-borrower.

Home Affordable Foreclosure Alternatives (HAFA): A federal program for home owners who can no longer afford their mortgage.HAFA provides two options for transitioning out of a mortgage: a short sale or a deed-in-lieu of foreclosure.
Eligibility requirements:

  • You live in the home or have lived there within the last 12 months.
  • You have a documented financial hardship.
  • You have not purchased a new house within the last 12 months.
  • Your first mortgage is less than $729,750.
  • You obtained your mortgage on or before January 1, 2009.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering, or tax evasion in connection with a mortgage or real estate transaction.

Home Affordable Modification Program (HAMP): A federal program that provides foreclosure-prevention initiatives to help borrowers in or at risk of default avoid foreclosure via loan modification or principal reduction to lower their monthly mortgage payments. The FHA and VA also offer HAMP programs for struggling home owners. See second-lien modification program.
Eligibility requirements:
• You obtained your mortgage on or before January 1, 2009.
• You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income.
• You owe up to $729,750 on your home.
• You have a financial hardship and are either delinquent or in danger of falling behind.
• You have sufficient documented income to support the modified payment.
• You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.

Home Affordable Refinance Program (HARP): A federal program for mortgage borrowers who are current on their payments but having trouble acquiring traditional refinancing because the value of their home has declined. These borrowers are usually underwater, meaning they own more on their mortgage than what their home is currently worth.
Eligibility requirements:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

Insolvency: When a borrower does not have enough liquid assets to pay down a mortgage.

Lender-mediated properties: Homes that are in the pre-foreclosure process, are already bank-owned, or are subject to a lender-approved short sale.

Loan modification: Changes to the loan terms and conditions to reduce monthly payments for the borrower.

Portfolio loan:A loan or asset owned and controlled in-house by the lender itself.

Principal Reduction Alternative (PRA): A federal program forhome owners who owe significantly more on their mortgage than what their home is currently worth. The program encourages non-GSE mortgage servicers and investors to reduce the principal loan amount.
Eligibility requirements:

  • Your mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.
  • You owe more than your home is worth.
  • You occupy the house as your primary residence.
  • You obtained your mortgage on or before January 1, 2009.
  • Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
  • You owe up to $729,750 on your 1st mortgage.
  • You have a financial hardship and are either delinquent or in danger of falling behind.
  • You have sufficient, documented income to support the modified payment.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering, or tax evasion, in connection with a mortgage or real estate transaction.

Refinance: The replacement of a loan (mortgage) with a new loan at a lower interest rate and under different terms and conditions, often reducing monthly payments, the term of the loan, or the loan risk.

Second Lien Modification Program (2MP): A federal program for borrowers who have two mortgages on the same property and the first mortgage was permanently modified under HAMP. 2MP provides a modification or principal reduction on the second mortgage as well.
Eligibility requirements:

  • Your first mortgage was modified under HAMP.
  • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
  • You have not missed three consecutive monthly payments on your HAMP modification.

Servicing agent: A lender or other entity that services a loan or asset on behalf of the investor that owns the loan. Often, the lender that originates the loan is neither the owner nor the servicer.

Shadow inventory:The cache of homes that have undergone the foreclosure process and are on the balance sheets of banks and GSEs but are not yet on the market for resale.

Short sale:A property transaction in which the lender or lenders agree to accept less than what is owed by the current home owner. Because the net proceeds from the sale are not enough to cover the sellers’ mortgage obligations, the difference is forgiven by the lender, or other arrangements are made with the lender to settle the remainder of the debt.

Workout sale: A situation in which the lender agrees not to move forward with foreclosure proceedings for a specific period of time, allowing the home owner to sell the property and pay off the loan.

Information provided by: National Association of Realtors 2/2012
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Understand the difference between a “backup contract” vs “multiple contract”

Posted on February 22, 2012 by admin

Most short sale addenda have provisions for backup offers if your Realtor checks the appropriate box. It is the opinion of Berlin-Patten Attorneys that, generally speaking, your Realtor should not check the box permitting backup offers when dealing with a short sale. It creates too many unnecessary legal and practical issues.

Most importantly, many lenders and their automated systems (such as Equator) will not allow two contracts to be under review simultaneously. As such, once a second contract is presented to the lender, the time frames run anew with that second contract. Moreover it has been have found that the two buyers are not adequately counseled with respect to the implications of permitting two or more contracts, and it is the attorney’s universal experience that one buyer will be very unhappy (sometimes to the point of legal threats) when all is said and done.  In other words, the buyer with the lower offer will obviously have an issue if a higher offer is subsequently submitted to the lender. As such, if the seller is going to entertain more than one contract, they had better do so very carefully, with proper legal counsel, and with adequate disclosure.

There are also significant legal considerations. For example, one needs to understand the difference between “backup” contracts and “multiple” contracts.  There is a significant legal distinction, a distinction that is important to understand when encouraging  more than one contract for the same property at the same time. A backup contract is just that, a contract that is clearly subordinate to a prior contract. It contains a backup contract addendum or similar verbiage that makes it clearly subject to a prior contract. If, however, two contracts are executed for the same property, and neither contains a backup contract addendum or similar verbiage, this is a multiple contract situation and potentially creates significant legal liability to not only the seller, but the realtors as well.  You cannot have two valid contracts for the same property without backup language in one of them.

As such, we strongly encourage any party who is considering the execution of more than one contract to consult with an attorney to determine (a) is it the best thing to do under the circumstances, (b) do they have the right to do so, (c) is the prior contract still in full force and effect, (d) if so, does it permit backup contracts, and (e) is adequate backup contract language contained within the second contract. Each of these decisions carry significant timing, factual and legal implications, and should not be taken lightly.

Information provided by Berlin-Patten, PLLC, Attorneys at Law

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