RI REAL ESTATE INVESTORS GROUP
II. RI REAL ESTATE TRENDS (Distressed Properties)
- 1 in every 524 housing units received a foreclosure filing in April, 2010.
- Total NEW foreclosure activity (861 units) Providence county accounts for
577, Kent County follows with 193
- 6 month trend = RISING
- 76% of properties in FC are at Auction stage;
- 24% are bank owned;
1. Are We Headed For A New Real Estate Decline?
- Fed Gov. tax credit for First Time Buyers now over and done. Result
is housing market that had begun to stabilize will now be set back as
demand wanes, meaning prices will soften, for buyers/investors
GOOD NEWS, less competition for short sales and foreclosures.
- Purpose was to increase demand and slash unsold real estate
inventories (only when inventory reduced is it possible for home
values in local markets to start rising).
- First Time Buyers important: typical year 40% of the marketplace is
represented by first time buyers. Take ONE first time buyer out of
the mix and you get multiplier effect.. first timer does not purchase,
existing homeowner canʼt sell and buy replacement property, person
who would have sold to existing owner canʼt market their property
- Each additional home bought under the program created new
demand for a wide array of goods and services related to
homeownership which helped high unemployment.
*** THE END OF THE TAX CREDIT WILL REDUCE REAL ESTATE
DEMAND. IN MARKET THAT REMAINS FUNDAMENTALLY WEAK,
THIS MEANS LESS PRESSURE TO PUSH UP PRICES (FEWER
BUYERS IN MARKET), MORE FORECLOSURES (BECAUSE HOME
SALES AS A WAY OUT FOR DISTRESSED BORROWERS WILL BE
MORE DIFFICULT) AND MORE SHORT SALES (BECAUSE LENDERS
HAVE LESS INCENTIVE TO HOLD OUT FOR HIGHER PRICES).
Mortgage applications are leading indicator of future sales, In March
FHA reported that it received 246,406 applications, down 19.9 percent
from a year ago. Most FHA purchase loans (80%) go to first time
2. The Coming Wave of Stealth Foreclosures
- More than 1.4 million borrowers have been offered trial mortgage
modifications through the federal government during the past year.
Surest place to find future foreclosures is among the very people
Uncle Sam is trying to help.
- A typical borrower with a federally modified loan is saving $512 a
month, and while $512 is a big deal for most households, modified
mortgages remain GROSSLY unaffordable.
- Modifications under HAMP only take into consideration income, NO
IV." HAMP AND HAFA (SHORT SALE EXPLOSION)
- 89% OF ALL LOANS COVERED BY HAMP (76 servicers, 2300
- 3 MILLION HAMP packets have been sent out - 1 Million loans are
currently in “trial modification periods”.
- 20% make to permanent (650,000 go to HAFA)
- 60% permanent loan mod failure (another 60K into HAFA)
1. WHAT IS HAFA?
- “HOME AFFORDABLE FORECLOSURE ALTERNATIVES” : (HAFA) IS
Governmentʼs answer to the HAMP (Home Affordable Modification
Program) Establishes short sale/DIL of foreclosure policies,
procedures and forms (11/30/09 initiated, 3/26/10 REVISED, 4/5/10
effective date, expires 12/31/12)
- HAFA is “overlay” to already existing Investor guidelines for short
sales, does not replace those procedures, it is designed to
standardize forms and process to make it quicker and more efficient.
- Why is HAFA important?
- All Lenders in HAMP required to participate in HAFA program.
- If HAMP fails or if borrower does not qualify, servicer/lender
MUST review them for HAFA BEFORE THEY CAN START
FORECLOSURE. (Short sale must be considered prior to FC!)
*** This will cause DRASTIC increase in Short Sales and
Foreclosure sales canceled (already scheduled).
NOTE: Non-GSE loans (no FNMA or FHLMC) however they have
come up with similar guidelines that essentially mirror HAFA
2. " ELIGIBILITY FOR HAFA (donʼt qualify do traditional “short sale”)
- Property Principal Residence (canʼt vacate and rent)
" Exception: vacant within 90 days prior to Short Sale Agreement
in order to re-located for employment more than 100 miles away; if relocate
cannot buy new property.
- First Mortgage originated before 1/1/09;
- Mortgage is Delinquent or Default is reasonably foreseeable;
- Current Unpaid Principal balance = to or less than $729,750.00 (NO
JUMBOS, regardless of where geographically located); exception:
multi-family home in which borrower lives (sliding scale)
- Borrowers total monthly mortgage payment exceeds 31% of
borrowers GROSS income.
3. PROCESS TO OFFER SHORT SALE OR DIL (ONCE ELIGIBLE)
- Borrower solicitation & Response: Servicer must proactively provide
borrower in writing of the availability of DIL or SS and allow
borrower 14 days to respond; if fail to respond, no further obligation
- Obtain Property Valuation (according to investor guidelines, ie. BPO
of full appraisal) (must be obtained as soon as borrower opts IN to
- Expected Recovery Thru Foreclosure and Disposition
- Servicer must do financial analysis (savings over REO, Net present
- Use of Borrower Verified Financial Info (review financials provided
during HAMP process)
- IF NOT previously reviewed for HAMP must fill out HAMP
paperwork info FIRST, allow 14 days or borrower to decide if
they want to be considered for a loan mod, if not, can proceed
with short sale.
4. " TERMS/CONDITIONS
- Minimum Acceptable Net Proceeds:
- % of current market value;
- % of list price approved by Servicer
Servicer MUST determine acceptable net price (cannot wait until
OFFER received). This amount can be published/assist with
marketing; Servicer must take into consideration costs of
closing etc.. cannot then ask for more money once costs
Servicer must document minimum net and cannot change for
-Payment Forbearance: Servicer will identify amount of monthly
mortgage payment, if any, borrower must make during listing (cannot
live for free) Payment cannot exceed 31% of gross monthly income (if
unemployed, no payment required) (Reason for opting out)
- Release from Deficiency Liability (including jr. liens)
5. " INCENTIVE COMPENSATION
" Borrower: $3,000 Relocation Assistance paid at Closing;
" Jr. Liens: up to an aggregate $6,000 (canʼt exceed 6% of unpaid
" balance); (Investor gets paid back 1-3 ratio for payment to jr.
" Servicers: $1,500 per short sale for admin costs (Some investors
" can and do pay more...they can make more $$ than foreclosing)
- SHORT SALE AGREEMENT:
- Must be signed by broker, borrower, servicer
- 120 day minimum listing period, can be extended to 12mos;
- Listed by a LICENSED real estate professional, NO sale by owner or
- List Price Approval from Servicer (closing costs set out)
- Real Estate Commission (canʼt ask to be reduced or waived)
- Notice that ARMS LENGTH transaction (cannot be related by blood,
marriage or business transactions);
- 90 day ANTI FLIP provision (regardless of HUD waiver)
- Amount of monthly mortgage payment
- Must be signed and returned within 14 days from effective date
- Cancelation/Escape Clause (Lender can cancel at any time, any
reason and not be responsible for commission)
Request for Approval of Short Sale Form
- Must send to servicer within 3 business days of offer, with copy of
sales contract, proof of Buyerʼs ability to pay and any jr. lien info;
- Within 10 days after offer, Servicer MUST approve or disapprove.
(Servicer must approve if Net Sale proceeds met)
- If disapprove must send written explanation of why.
Alternate Request for Approval of Short Sale Form
- If borrower never reviewed for HAMP/HAFA, can request review
(Service MUST offer HAMP first)
From This Month's RIRRIG