Share Your Home Equity Appreciation To Avoid Foreclosure

Hi Folks,

   Welcome back. We have a cool topic to discuss today, and I want to dive right in so we can get to your opinions, thoughts, comments.

   "Lenders could write down mortgages in exchange for claims on future appreciation – potentially making it a win not only for homeowners but also for lenders and investors". This comes from an article from Fortune/CNN titled, "A mortgage fix for lenders and homeowners: Shared equity" by Nin-Hai Tseng.

   Yes, perhaps this is something you toyed around with in your head before and said to yourself; "Wait...this can't be legal". News Flash - Harvard University's Kenneth Rogoff and Massachusetts Institute of Technology's Bill Wheaton have made this proposal, in which, as they suggest that "the government should facilitate mortgage write-downs in exchange for claims on a percentage of future appreciation – potentially making it a win not only for homeowners who owe more on their homes than their properties are worth, but also a win for lenders and investors who would eventually be repaid for giving borrowers a break."

   Taking a step back to look at the bigger picture, Real Estate correlates with the larger Economy and spending and growth. As Tseng writes, the Obama administration is studying a variety of options, and as reported by the New York Times, this includes the potential to allow "millions of homeowners with government-backed mortgages to refinance them at today's lowest interest rate of about 4%", and also includes the possibility of "tweaking existing refinancing programs so that more homeowners take part."

   And now...back to the Proposal.

   Tseng provides a hypothetical example of someone with a home that they purchased for $100,000, which is now worth $60,000, and which puts them on the ugly side by $40,000 ("underwater mortgage"). The proposal would be for the mortgage company to restructure the loan for the borrower at $60,000, which would keep the borrower in the home, and in exchange for the lower payments, there mortgage company would have a stake in the "future appreciation" of the home. So, for a 50% stake, if the price of the home appreciated to $90,000 and was sold, the appreciation would be $30,000, and 50% of the sales proceeds ($15,000) would go to the mortgage company.

   Taking this one step further, if that same property increases in value to $140,000, that would be an $80,000 appreciation, of which $40,000 would go to the mortgage company, thus, as Wheaton says, the lender would recover all its money.

   But there are some variables to take into account here. Tseng pointed out in the article that the speculation regarding the substantial rise in home value presented in the article above is a big "if". Also, it was mentioned that the lender could potentially, "put a clause into the loan that keeps the owner in the home until the value of the property recovers a designated amount", and says that this could "make the deal more complicated and potentially less attractive for the homeowner". Tseng also adds that home prices need to "actually appreciate" for this to work (Tseng provides the example of a high-volume of housing inventory that will keep prices down for a while), and that the lender could still see losses (perhaps not as much as in a foreclosure).

   Nevertheless, Tseng says, "the idea of shared equity between lender and borrower is worth a serious look", and points to previous programs that were not decisive in stemming foreclosures (i.e. Hope for Homeowners in 2008 and Making Home Affordable Plan, or HAMP, in 2009). Nothing has really had enough bite, so far.

   A very important point raised by Manuel Adelino, a real estate finance professor at Dartmouth University, as to why we are not seeing more loan modifications, was that the banks, "don't really know who to give them to", and he adds that if the banks decide to give them only to people who are delinquent on their mortgage payments, then it gives them and others "the incentive to be delinquent".

   So, who could this proposed plan benefit right now, given the current market and the excess housing inventory mentioned above? Borrowers and Lenders. Tseng said that it could lessen the impact of losses occurred from foreclosure to both borrowers and lenders.

   Tseng also said that it does not let borrowers "off the hook, at least not easily", and says that if Wall Street got its bailout ("even if unwillingly"), "shouldn't Main Street get a chance?".

   I think this is a great idea, if for no other reason than cutting foreclosure losses for both sides, eliminating the stigma of the foreclosure process, and putting the framework in place for when home prices do rebound.

   Never mind what I think...What do you think?

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #sharedequity #foreclosure #refinancingprogram #underwatermortgage #HAMP #mortgagepayment #homeprices

Is the HAFA Short Sale Program Working?

Hi All,

   The days of summer, heat, humidity, bugs, etc, are dwindling down. Prepare your parkas and get ready to pick some pumpkins!

   "Foreclosure Crisis"

   Just reading those words will make many folks shudder, thinking about the possibility that they can potentially lose their home. For those folks that can and want to stay put during the process vs give the deed back to the bank in lieu of foreclosure ("Deed in lieu of foreclosure"), the would probably be considering a Short Sale, or selling the house "short" of what is owed on the home.

   The long-running issue with Short Sales is that they can drag on and take months or even longer to complete, and they can be quite painful for both buyer and seller. As a matter of fact, back in July, we did a post titled, "Lengthy Short Sale Process a Painful Reality" (BLOG POST HERE or PODCAST MP3 HERE), and in sum, the Short Sale Process is like a modern day "Wild West".

   Then comes HAFA...

   "HAFA is an acronym for Home Affordable Foreclosure Alternatives" writes Elizabeth Weintraub for About.com in her story titled, "Is the HAFA Short Sale Program Right for You?". Weintraub says that the HAFA short sale program, which is part of President Obama's Making Home Affordable Program. is designed to "help underwater sellers either modify their loans or sell their homes as a short sale to avoid foreclosure". The program was created with a limited lifespan (effective from April 5, 2010, through December 31, 2012), but the goodies are in what the program promises, and as Weintraub writes, "HAFA promises short sale approval within 10 days and gives the seller up to $3,000 in cash at closing". Whimsically, Weintraub says that the program "has been touted as the answer to every short sale agent's nightmare." Let's take a closer look at the program and some of the benefits.

   Some of the key benefits provided by the plan are as follows, per Weintraub; Lenders must agree not to foreclose during the short sale process, Second lenders can no longer try to force a seller to commit short sale mortgage fraud by demanding payments outside of escrow, and Sellers will receive a government payment of $3,000 at close of escrow to cover relocation expenses. One of the most interesting benefits is that the Lenders that participate in HAFA waive the right to a deficiency judgment, and for someone selling a home for $100,000 below the mortgage amount, that is huge ! At interest to Real Estate Investors, all parties involved in HAFA would need to sign an "arm's length affidavit" (Seller cannot sell a friend or relative and buyer cannot sell the property for 90 days).

   Before a borrower can apply for HAFA, they first need to apply to HAMP (Home Affordable Modification Program), which requires all 5 rules be met in order to be eligible (only personal residences with a pre 1/1/2009 mortgage of below $729,750, with monthly mortgage payments of greater than 31% of the borrower's gross monthly income, coupled with some form of borrower hardship). Each of the 5 rules must apply. As Weintraub says, "If any one of the 5 rules do not apply, then the borrower is not eligible for HAMP."

   Now, this is where things get tricky. Weintraub says that "Eligibility and qualification for HAMP are two different animals", and that "If you are eligible for HAMP, it does not mean that you will qualify for HAMP". She adds a valuable insight; "Your goal, if you want to do a short sale, is to hope that HAMP will turn you down"..."Then you will be eligible for HAFA". If you are accepted into HAMP, she adds, and you stop making your loan modification payments, you can also apply to HAFA. "HAFA is a government-sponsored program, it's a lot more complicated than that", Weintraub says.

   To check eligibility, find out if your Lender participates in HAMP, since as Weintraub says, "lenders that participate in HAMP also participate in HAFA.". Who does participate? As of this post, Fannie Mae lenders, Freddie Mac lenders, and quite a large amount of other lenders (Bank of America, NA, CitiMortgage, Inc, etc.)

   If you are rejected for HAMP, then you can apply for the HAFA short sale program or Deed in-Lieu-of Foreclosure, but as Weintraub writes, "I don't know why anybody in their right minds would do a deed in-lieu". Basically, for HAFA, they pre-approve the price and permit 4-months to sell the home short via a Realtor. Similar to the HAMP, this is also only for personal residences with a pre 1/1/2009 mortgage of below $729,750, and in addition, the seller must be behind in payments or close to it, and previously rejected by HAMP.for HAMP.

   Is it Working? Is it Functional?

   According to a story by Jon Prior on HousingWire.com, the "Servicers completed 10,438 short sales through the government's Home Affordable Foreclosure Alternatives program since it launched in April 2010, according to the Treasury Department". The big loan services handling the majority of these deals were JPMorgan Chase (approximately 3600 completed), Wells Fargo, and Bank of America, to round out the top 3. It definitely looks like it's working...there is a story behind each deal, for sure.

   In terms of on-the-ground and in-the-trenches reality, Weintraub says it's "interesting to point out that very few borrowers tend to qualify for a loan modification", and says that, in fact, "almost every single short sale that I do in Sacramento is for a seller who was rejected for a loan modification."

   In the article from HousingWire.com, Prior added some comments from Pam Marron, a senior loan officer with Gold Start Mortgage Financial Group in Tampa Bay, Fla.". Marron said that "more and more homeowners in negative equity view a short sale as their only way out. Many, she said, are defaulting because banks require them to do so in order to qualify for a short sale". Marron also says that the growing problem in Florida is the "alarming increase in the number of short sale listings that are coming onto the market", with people that are "still employed but severely underwater and are having to short sale because they are not able to pay the vast difference owed between the mortgage amount and the value of these homes".

   One of the most interesting, yet disturbing, quotes from Marron was as follows"; "Banks are requiring homeowners to default in order to qualify for the short sale". It's crazy!

   Apparently, I think the program is working, but it should be extended, and Realtors and Real Estate Attorneys should be letting more homeowners know about the program. It's not news that is spread around as much as it should be. Hopefully, this post can help towards notifying more struggling families, friends, and neighbors that there are options for them.

   Can you help spread the word?

Would You Like Our Blog Posts Directly to your E-mail? Here's How:
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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com


TAGS: #HAFA #HAMP #Foreclosure #ShortSales #DeedinLieu #loanmodification #bank #mortgage #realestateinvestor

HAMP, HPF, GMAC...Working For You or Against You?

Hi Folks,

   Hope you had a great weekend, and as always, ecstatic to have you back with me here today.

   Let me first preface this Blog post with a, "This is Just the Facts" disclaimer...it is not politicized, but just based on facts from a recent story titles, "Former Subprime Lender Runs Key HAMP Program", by Elizabeth MacDonald for FoxBusiness, which details, "Conflicts of interest accusations against a key player in the Treasury Dept.'s heavily criticized, $46 billion "Home Affordable Modification Program," or HAMP."

   As you may already know, the HAMP was launched in February 2009, with the administration, "vowing that it would stop foreclosures for three million to four million distressed homeowners." The HPF, or The Homeownership Preservation Foundation, provides free foreclosure counseling over a toll-free foreclosure prevention line.

   Now, as the story says, the chairman of HPF, Bruce Paradis, is the former chief executive of the failed big subprime lender GMAC-Residential Capital (Rescap), which originated, "more than $65 billion in rotten loans during the height of the bubble, from 2004 to 2007.", and the received, "$17.2 billion in taxpayer money from Treasury’s Troubled Asset Relief Program, or TARP to re float its operations."

   As for HPF, they received a lot of money from mortgage industry players (Fannie Mae, American International Group (AIG), and the now defunct Countrywide Financial), and as the story says, HPF also got, "tens of thousands dollars more from Ocwen Loan Servicing, Chase Manhattan Mortgage, and Washington Mutual."

   "HPF’s hot line number is on every HAMP denial notice sent to borrowers rejected by the federal modification program, and it also “appears on 4,927 government Web sites,” and “ is prominently featured" by "40 top lenders” in their mortgage operations" HPF tells Fox Business.

   The question is asked; "How serious are these conflicts of interest charges?". Apparently, the controversy could give, "impetus to a growing movement in Congress pushing legislation to repeal HAMP." A group of Congressmen say that HAMP, "is a costly, abject government failure that has more to do with political atmospherics than mortgage modifications, only 500,000 permanent loan modifications done to date at great taxpayer cost, says Sen. Demint." Incidentally, "that's a fraction of the Administration’s stated goal of reaching up to four million."

   Criticizing HAMP for, Neil Barofsky, the Special Inspector General for the Treasury’s Troubled Asset Relief Program, criticized HAMP and says that "failed trial modifications often leave borrowers with more principal outstanding on their homes", adding there is "near universal agreement that the program has failed to meet its goals." Additionally, Sen. Coburn says in a statement that HAMP "has done nothing but string alone homeowners and increase their hardship." Some borrowers have seen their credit scores worse, and under HAMP, more mortgage modifications have failed than been successful.

   HPF strongly agrees that they have checks and balances to stop mortgage servicers from influencing the advice they give on the phone, and that they focus on, "ensuring that the homeowner knows the counselor is on their side, seeking the best possible resolution of their problem". "Staying neutral between borrowers and lenders who back the nonprofit seems to be uppermost on the minds of HPF officials.", say the story.

   The most important factor that was pointed out here, was that both HAMP and HPF are voluntary programs, and that "No government official can force a loan modification on any borrower, lender or servicer", and thus, the "bottom line here is, HPF, HAMP, Treasury or HUD cannot pressure servicers to modify loans."

   Overall, it is a mess of Red Tape, some of it intertwined and just mangled. Bureaucracy at work. Love it or hate it, America is America, and we always emerge stronger from anything hurled at us!

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com