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Fannie Mae’s New Loan Workout Hierarchy
The link below identifies the Fannie Mae loss mitigation options that are available to assist borrowers experiencing financial hardship.
It is 19 pages and goes through a temporary and a long-term hardship. I am not an expert when it comes to this because I don’t do modifications but I wanted to make sure to share it with you.
https://www.efanniemae.com/sf/servicing/pdf/loanworkoutfactsheet.pdf
Is a Short Sale or Foreclosure Better For Your Credit
I think anyone in the real estate business will tell you that a short sale is better. Both of them affect your credit about the same amount but if you are trying to buy another home you will be able to do so earlier when you have a short sale on your credit versus a foreclosure.
Also, with a short sale you can get away with not having a deficiency balance so on your credit report it shows nothing is owed but with a foreclosure there will be a balance owed.
The article below goes into detail about this and also comments on how it can affect your family http://kcmblog.com/2011/05/04/is-a-short-sale-or-a-foreclosure-my-best-option/
A Foreclosure & How It Affects You Buying Another Home
Most people do not know that the release date that banks have to go off of is not the date that you are foreclosed upon and they take title from you. The release date is the date that the bank disposes of the property.
It can take a bank months or years to finally sell your property and that is when your waiting period begins. Typically the bank won’t allow you to buy again for another 4 years but there were new rules that Fannie Mae came out:
- Deed-in-Lieu of Forecloure is 2 years with a minimum of 20% down.
- Preforeclosure sale is 4 years with a minimum of 10% down
- A short sale is 7 years and the down payment will depend.
If you can show an extenuating circumstance than all of the above goes to 2 years and a minimum of 10% down. Fannie Mae defines a unique hard ship as:
- is unlikely to re-occur and is not a natural or manmade disaster;
- is temporary in nature or of limited scope, but impacts many borrowers;
- may involve property damage, hazard in the dwelling, or other adverse property conditions;
- creates financial hardship that impacts the ability of the borrower to continue making payments on the mortgage loan;
- may involve uncertainty regarding whether insurance will cover the losses incurred; and
- has been designated as a “unique hardship” by Fannie Mae.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1011.pdf
FHA requires 3 years and VA is 2 years. The years and guidelines mentioned above are subject to change without notice and can vary from bank to bank.
An example of it taking years would be if your bankruptcy was discharged in January of 2008 and the property wasn’t sold until January 2010 you have to wait 2 years from January of 2010. Just because the property was included in the bankruptcy doesn’t matter.
Loan Modification Help Coming To South Florida
If you know of anyone in need of a loan modification I would recommend for them to attend this event.
The nonprofit Neighborhood Assistance Corporation of America — hero to the struggling homeowner, bully to big banks — said it will conduct its third South Florida mortgage counseling extravaganza Aug. 27-31 in West Palm Beach.
The Boston-based group touts an 80 percent success rate, crediting much of the achievement to hundreds of bank representatives who attend its programs and meet face-to-face with homeowners.
There was an article back in December about this and 80% that were expected to receive workouts within weeks according to CNNMoney.
“Wynn was able to get his modification at a “Save the Dream” event offered by the Neighborhood Assistance Corporation of America (NACA) in New York City last Friday. Lenders from nearly all the major banks and servicers were in attendance and promising to restructure loans based on what borrowers could afford. As a result, many homeowners walked in with their mortgage problems and walked out with solutions. In fact, according to Bruce Marks, NACA’s founder, 40% of attendees left with decisions the same day. About 80% are expected to receive workouts within weeks. His organization has already hosted about 400,000 borrowers at more than a dozen of these events.”
Life After Foreclosure
How long will you have to wait in order to buy again? It is going to depend on whether you can show a true hardship or not versus someone who just walked way, a strategic default. Another part that is going to play a large part is how much you are willing to put down.
Fannie Mae recently released their new guidelines for distressed sales such as a short sale. The new guideline basically says the more you put down the sooner you can buy a home.
Whether or not you had a true hardship is going to be to the underwriter’s discretion and I would have to imagine you better have a lot of documentation to back up the fact that you didn’t just walk away such as a job loss, health issues, a huge decrease in income, etc.
There is no telling what the future of mortgages holds for us but make sure to pay all of your other bills on time, start saving money for a down payment, and look into getting your credit repaired if it needs it.
Lenders May Go After Homeowners
This is very real and I am sure there will be many that will buy the deficiency judgments from the banks for pennies on the dollar and then go after the homeowners.
Lenders will file a tidal wave of lawsuits against homeowners in the next few years as a way to recoup losses when home sales or foreclosure auctions don’t result in enough money to pay the mortgages in full, real estate and legal analysts say.
Under Florida law, banks have five years from the date of the sale to file for so-called deficiency judgments and up to 20 years to collect. Lenders can garnish wages or make claims on borrowers’ assets.
Fannie & Freddie Won’t Pay Down Your Mortgage
They are saying that they prefer to do interest rate reductions and term extensions. My opinion is that you only help those who lost their job or had a real hardship which wouldn’t include a mortgage broker who’s income decreased. All of us who do not receive guaranteed pay need to make sure we spend less and save for a rainy day. I was told when I first got in the business that if you make $200,000 you should spend like you make $50,000. That might be an extreme but I sure which I listened a little better myself. I and many others hopefully will learn from our mistakes.
In order to make the modifications work I feel you need to do a principle reduction. I am not saying that is fair or what should be done but I think it would lower the re-default rate on the modifications dramatically. It’s all psychological.
What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people’s mortgages.
Surprise Tax Hits With Foreclosures
This was interesting and something I did not know.
“While canceled debt originally used to buy or build a house can be exempted from tax filings, debt used for other purposes cannot. “I just thought I’d get out from under the house and that would be that,” she says.”
Make sure to always consult a CPA. Another thing that is happening in South Florida right now is that they are going after people who claimed their property as a Homestead property, meaning they occupy the property as their primary residence, but it really wasn’t. State and local governments are looking for ways to make up for lost revenue so you better be careful.
http://online.wsj.com/article/SB20001424052748703686304575228783947789118.html?mod=djemITP_h
Homes Can Be Lost By Mistake When Banks Miscommunicate
That’s quite a headline. Unfortunately it is true and I am sure it is making people irate. I would guess that this can happen because the banks are so unstaffed. I have to imagine that it is pretty hard to staff up and take on more employees to handle foreclosures and short sales when the distressed sales are exactly why everyone had to let go of their employees.
Apparently another reason this happens is due to disorganization. “Communication breakdowns occur because of the way the servicers are structured. One division typically deals with modifications and another with foreclosures. Servicers also hire a local trustee or attorney to actually pursue foreclosure.”
I think it’s a combination of being understaffed, disorganized, and having employees who just don’t’ know what they are doing. Everything to do with the mortgage business right now is a learning curve even for those who have been in the business for over 20 years. You could never begin to understand this unless you were in the business so next time instead of yelling and screaming, try being more sympathetic. Whether you are right or wrong you will get much further with that mindset.
http://www.usatoday.com/money/economy/housing/2010-05-05-foreclosures05_CV_N.htm
How To Buy A Foreclosure
The article below talks about pre-foreclosures, sheriff sales, repossessions, bidding frenzies, underestimating repair costs, and not having your financing in place. They are all important to be educated on and I am not an expert by any means on any of them other than the financing. Always make sure to talk to an expert real estate agent, inspector, real estate attorney, and mortgage professional.
I think the article could have done a better job of how they listed the above mentioned items because the very first thing you should be doing is getting your financing in place. I have been preaching about this for awhile now so I won’t get into it again but please understand how important this part of it is.
MillerOnMortgages
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Miller on Mortgages 