Eye for Homes Real Estate Musings and Information

Mortgage rates are great! Unfortunately, homeowners who owe more on their home than it’s worth have found it impossible to lower their monthly mortgage payments through refinancing. Good news is on the way!

On Monday, October 24^th, The Federal Housing Finance Agency, along with Fannie Mae and Freddie Mac, announced changes to the Home Affordable Refinance Program (HARP). These changes should allow more homeowners to benefit from today’s great interest rates.

To be eligible:

• 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.
  • Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to: http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE (8 am to 8 pm ET)
  • https://ww3.FreddieMac.com/corporate/ or 800-FREDDIE (8 am to 8 pm ET)
• The current loan-to-value (LTV) ratio must be greater than 80%.
• Borrowers must be current on their mortgage payments with no late payment in the past six months and no more than one late payment in the past 12 months.
• 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.

According to the California Association of Realtors, “The new program enhancements address several other key aspects of HARP including:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
• Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
• Extending the end date for HARP until Dec. 31, 2013, for loans originally sold to the Enterprises on or before May 31, 2009.

Fannie and Freddie plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by Nov. 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.” In addition, “Fannie Mae and Freddie Mac also will reduce the fees they charged in the past to enable borrowers to better afford the new loans. Among the fees that will be reduced or eliminated are those for appraisals, title insurance, and closing costs.

The Federal Housing Finance Agency’s Press Release has a useful FAQ section which answers the following questions:

Is there a maximum loan-to-value (LTV) ratio for HARP?

There is no longer a maximum LTV limit for borrower eligibility. If the borrower refinances under HARP and their new loan is a fixed rate mortgage, there is no maximum LTV. If the borrower refinances under HARP and their new loan is an adjustable rate mortgage, their LTV may not be above 105%.

What are the circumstances under which appraisals are not required?

We are further streamlining the Enterprises’ existing use of AVM (automated valuation model) estimates of properties. Where there is a reliable AVM estimate of value provided by the Enterprises, a new appraisal will not be needed. Where there is not a reliable AVM value, a new appraisal will be required.

When will these enhancements become available?

Timing will vary by mortgage lender. The Enterprises will be sending operational instructions to lenders by November 15th. Some lenders may be able to accommodate mortgage applications under some of the enhancements by December 1 while it could take other lenders additional time to incorporate the expanded program into their systems. In addition, some of the enhancements such as delivery of loans with LTV greater than 125 should be operational during the first quarter of 2012.

Borrowers should contact their existing lender or any other mortgage lender offering HARP refinances.

We all know, or have heard, about the difficulties of negotiating and getting a short sale approved from a lender. One of the many challenges that Borrowers/Sellers face is the lenders’ potential desire to recover the balance of what they’re owed from the Borrower after escrow closes. Well, life just got a bit easier for California Homeowners negotiating a short sale with their lender(s).

Last month a new law, SB 458, was passed by the California Legislature and signed by the Governor. In short, it prevents a lender from pursuing the deficiency from the Borrower after the close of escrow. If a lender agrees to a short sale, then they must accept the agreed upon payment as payment in full. This law applies to senior and junior lienholders on 1-4 unit residential properties regardless of whether or not the property is owner occupied or rented, and regardless of the loan being a purchase money or refinance.

According to the California Association of Realtors President, Beth L. Peerce, “The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference…SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

As with every law, there are limitations and rules. I strongly suggest that if you are a Seller, you consult with an attorney. If you would like a referral to an attorney, or are facing financial difficulties and would like to meet and discuss your options, please feel free to contact me.

Whether you’re buying or selling real estate, make sure you have someone acting on your behalf. Work with a REALTOR® who will represent your interests in the transaction. If you’re a Buyer interested in a property and the listing agent offers to write up an offer for you, ask yourself: is the agent representing your interests, or the Seller’s?

In California, there are three types of Agency Relationships:

1. Buyer’s Agents

2. Seller’s Agents

3. Dual Agents

Simply put, a Buyer’s agent protects the interest of the Buyer, a Seller’s agent protects the interests of the Seller, and a Dual agent walks the fine line of representing both the Buyer and Seller in a transaction. Keep in mind, an agent can represent both the Buyer and Seller, but only with the knowledge and consent of both parties.

According to the California Association of Realtors’ Disclosure Regarding Real Estate Agency Relationships, both a Buyer and Seller agent have “…a Fiduciary duty of utmost care, integrity, honesty and loyalty in dealing with…” their Client. In addition, the agent owes to their respective Client the:

a) “Diligent exercise of reasonable skill and care in performance of the agent’s duties.

b) A duty of honest and fair dealings and good faith.

c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.”

A single agent representing both the Buyer and Seller (Dual agent), is put in the precarious position of having to fulfill the aforementioned duties while not disclosing information the respective parties consider confidential such as high/low price and terms they would or would not accept.

Why risk it? In the end work with an agent who will look out for you, not the other party. Work with an agent who shows him or herself to be trustworthy and knowledgeable.

(Now, in all fairness, agency relationships can get a little more complicated than described above. Keep in mind that an agent’s employing Broker is also considered the “agent” in the transaction. For example, you may be a Buyer working with a Better Homes & Gardens agent who shows you properties listed with various Brokers in the area. If the home you like and wish to put an offer on is listed with Better Homes & Gardens, but with a different agent, this is still considered “Dual Agency”! Discuss this situation with your agent. In most instances, the Broker does not know the actual parties, details and motivations of a given transaction. Only the actual agents do.)

As some of you already know, and others will eventually find out, there’s nothing short about short sales. Short sales take time. No two situations are ever the same. The smart move is to work with a knowledgeable agent, understand the procedural landscape and set your expectations accordingly.

First, let’s answer the question “What is a Short-Sale?” Simply put, a short sale occurs when a lender accepts less than what is owed for a home in order to release their interest (mortgage lien) on the property. For example, a homeowner may owe $300,000 to the bank, but may only be able to sell the home for $250,000. In this instance, the homeowner would have to ask the bank to accept a minimum $50,000 loss to release the lien on the home and allow the sale to proceed. Keep in mind, the lender is not required to approve a short sale! Let’s remember the second Golden Rule, “He who has the gold, makes the rules.”

As the market has shown us, though, buying or selling a home through a short sale can be done successfully. In order to succeed, one must understand the processes and have the patience and tenacity to see it through. Here are a few important things to keep in mind:

• Get your act together. On the buyer side, be prepared to show that you are qualified to buy the home by speaking to a lender & getting pre-approved. On the seller side, work with your agent to understand and pull together all the information the bank will require in order to consider your home for a short sale approval including your financials and a short sale hardship letter. When an offer comes in, it will be submitted with the “short sale package” to the lender for consideration.
• Be patient. Your file may be put in a queue of hundreds of other files waiting to be assigned a negotiator. Frankly, it could be weeks before the file is assigned and several more weeks before someone is actually reviewing the paperwork. This takes time.
• The lender/investor has to make a decision. They will want to understand why they are being asked to take a loss. They will consider a variety of factors including the circumstances of the hardship, the sellers’ ability to shoulder some of the burden, the current market value of the property, the reasonableness of the offer, the buyer’s ability to close the deal, the additional transactional costs, and whether or not to go to foreclosure instead. This takes additional time.
• Sellers, don’t stop selling the home. Once you have submitted an offer and package to the bank, the temptation to stop showing the home to prospective buyers is strong. Doing so is a mistake. Circumstances change and the buyer you thought was there may be gone by the time you receive an answer. Always work to get backup offers
• Buyers, don’t be afraid to be in a “back-up” position. As mentioned above, things happen. The bank can come back with an approval and the primary buyer has simply disappeared. It’s great when you get the call to step up. These calls do happen!

Keep in mind, the bank can accept the short sale, but change the terms by which it accepts. If the terms aren’t what were offered in the contract, the seller can present these new terms in a counter offer and the buyer has a right to refuse. If the seller finds the bank’s terms too onerous (sometimes the lender will ask the seller to bring in funds of their own to close or will offer to release the lien, but still hold the seller responsible for paying the debt on the promissory note), typically, they have a right to refuse the terms and call off the sale.

There are other considerations in a short sale such as how many liens a home has, who the lenders are and their willingness and ability to work the transaction efficiently, the condition of the property, the buyers’ loan process as well as the willingness of the parties in the transaction (including the agents) to work the deal and communicate effectively. There will be hurdles to overcome. You will experience highs and lows, joys and disappointments. Just remember, work with an agent you trust and hang in there!