Realtor Note: Though this policy is highly anticipated, I have not
heard or experienced the shorter response time by the Load Mitigation
Department for any Lender. Continue to expect the time from offer
submission to lender negotiations/approval to range from 30 days to five
months. I'll keep you posted on any progress.
The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage
companies to speed "short sales" of homes and other loan modification
alternatives to stem a rising tide of foreclosures.
The Home Affordable Foreclosure Alternatives Program provides financial
incentives and simplifies the procedures for completing short sales, a
growing practice in which a lender agrees to accept the sale price of a home
to pay off a mortgage even if the price falls short of the amount owed,
according to an announcement on the Treasury's website.
Guidelines address barriers that have often sidelined short sales by setting
limits on the time it takes a bank to approve an offer, freeing borrowers
from debt and capping claims of subordinate lenders.
The incentives, first announced in May, expand on the government's Home
Affordable Modification Program, known as HAMP, that has seen limited
success in lowering payments for distressed homeowners. The Treasury earlier
on Monday stepped up pressure on mortgage companies to make permanent the
650,000 trial modifications they have started.
"While HAMP program guidelines are intended to reach a broad range of
at-risk borrowers, it is expected that servicers will encounter situations
where they are unable to approve" or offer a modification, the Treasury said
in its announcement.
Financial incentives for completing short sales or similar deed-in-lieu
transactions -- in which the deed is simply transferred to the lender --
include a $1,000 payment to servicers, and a maximum of $1,000 to go to
investors who sign off on payments to subordinate lien holders, the Treasury
said. Borrowers would receive $1,500 in relocation expenses.
Short sales are favored by real estate agents and community groups over
foreclosure because they can preserve the borrower's credit rating and leave
the property in better condition than when a homeowner is evicted. While
primary lenders typically realize steep losses, their recovery is typically
far better than under foreclosure.
But short sales have been frustrating for borrowers and real estate agents,
often hung up by negotiations with multiple lien holders and mortgage
insurance companies. Real estate agents have complained that sales fall
through as lenders bicker over the sales price, what they should receive
from the proceeds, and whether the borrower will be held accountable for the
debt in the future.
Among requirements, mortgage servicers have 10 days to approve or disapprove
a request for short sale, and when done the transaction must fully release
the borrower from the debt.
It also prohibits mortgage servicing companies from reducing real estate
commissions on the sale, a practice that has dissuaded many agents from
taking short sale listings.
In one of the most contentious issues gumming up negotiations between
lenders, the guidance caps the aggregate proceeds to subordinate lien
holders at $3,000.
Second lien holders in recent months have begun demanding more money from
the first lender, seller, buyer or agent in exchange for releasing their
claim, agents have said. Because primary lenders would face larger losses in
a foreclosure, some subordinate lenders have felt empowered, the agents
said.
The largest second-lien holders are Bank of America Corp, Wells Fargo & Co,
JPMorgan Chase & Co and Citigroup Inc.
Second lien holders may proceed with a short sale outside of the Treasury
program, if they felt the cap was too low, a Treasury official said in
October.
"If there was a short sale program that didn't recognize the second lien
holder position, it could have pretty damaging consequences for the
industry," Sanjiv Das, chief executive officer of CitiMortgage, said in an
interview last week.
By Al Noon - Reuters
