As promised, two weeks later on March 4^th, the Administration published detailed program guidelines and authorized servicers to begin modifications and refinancings under the plan immediately.  On April 28^th, the Administration announced additional details related to the Second Lien Program and strengthening Hope for Homeowners. Fourteen servicers, including the five largest, have now signed contracts and begun modifications and refinancings under MHA.  Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more than 75 percent of all loans in the country are now covered by the MHA program.  

Today, the Law Office of Peter J. Goodman is providing a program update on Home Price Decline Protection Incentives.  Building on insights developed by the FDIC, Home Price Decline Protection Incentives will provide additional payments based on recent home price declines, and therefore will incentivize additional modifications in areas where home prices have been falling. By increasing MHA modifications and the use of alternatives to foreclosure, we will reduce the negative impact of foreclosure, minimizing damaging costs for financial institutions, borrowers and communities. 

The hope is, together with the other comprehensive elements of the Making Home Affordable program, property values will be stabilized for homeowners in neighborhoods hardest hit by foreclosures. Based on estimates of the relationship between foreclosures and home prices, the Home Affordable Modification program could help to bolster home values for the average homeowner by as much as $6,000.   

 Home Price Decline Protection Incentives to Protect Against Falling Home Prices:

This initiative provides lenders additional incentives for modifications where home price declines have been most severe and lenders fear these declines may persist. These incentives will encourage servicers to undertake more modifications by assuring that incremental investor losses will be partially offset. 

To encourage the modification of more mortgages and enable more families to keep their homes, the Administration, building on insights pioneered by Chairman Bair and the FDIC, has developed an innovative payment that provides compensation based on recent home price declines, structured as a simple cash payment on every eligible loan.  Home Price Decline Protection (HPDP) incentives are designed to address investor concerns that recent home price declines may persist. Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed.  HPDP payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.

• Increases Number of Loans that Are Modified: Making Home Affordable will make payments totaling up to $10 billion to to encourage lenders, servicers and investors to modify rather than foreclose by addressing concerns that home price declines will persist in the future. This should increase the number of modifications completed under the MHA program in markets hardest hit by falling home prices.  

How The Program Works:

 •• Payments will be based on the total number of modified loans that successfully complete the modification trial period and remain in the modification program.

•• Each successful modification will be eligible for a HPDP incentive, up to a cap for HPDP incentives of $10 billion.

•• If the trial modification remains successful, 1/24^th of the HPDP incentive will accrue to the lender/investor each month for up to 24 months.  HPDP incentive payments will be made at the end of the first and second year of the modification.

 Calculation of HPDP Incentives: HPDP incentive amounts will be calculated based on a formula incorporating: 

•• Declines in average local market home prices over recent quarters prior to the quarter in which the loan was modified based on housing price indices; and

•• The average price of a home in each particular market, since the potential loss due to a given rate of home price decline will be larger in higher cost areas.  

 For more updates on the Making Home Affordable Plan – or any other real estate legal matters – please contact us at http://www.pjgoodmanesq.net

On February 18, 2009 the Obama Administration announced the Making Home Affordable (MHA) Program, a comprehensive plan to stabilize the US housing market and offer assistance to up to 7 to 9 million homeowners by reducing mortgage payments to affordable levels and preventing avoidable foreclosures. Part of this plan includes a Short Sales/Deeds-In-Lieu Program as a foreclosure alternative.

For eligible borrowers unable to retain their homes through a Home Affordable Modification, MHA will provide incentives to borrowers, servicers and investors to encourage short sales and deeds-in-lieu. Both allow families and servicers to avoid the costly foreclosure process, and to minimize the negative impact of foreclosures on borrowers, financial institutions and communities. 

Both a short sale and a DIL provide an opportunity for borrowers to avoid the foreclosure process. In a short sale, a servicer allows the borrower to sell the property at its current value, even if the sale price is less than the total amount owed on the mortgage. Approval of a short sale requires the borrower to list and actively market the home at its fair value.  The sale must have all proceeds (after selling costs) applied to the discounted mortgage payoff. If the borrower actively markets the property but is unable to sell it within the agreed upon time period, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided the title is free and clear.

How The Home Affordable Short Sale/DIL Program Works:

Borrower Eligibility. Borrowers will be eligible for the Foreclosure Alternative Program if they meet the minimum eligibility criteria for a Home Affordable Modification but did not qualify for a modification or were unable to sustain payments under a trial period plan or a modification.  Prior to going into foreclosure, participating servicers must evaluate each eligible borrower to determine if a short sale is appropriate.  Considerations in the determination include property condition and value, average marketing time in the community where the property is located, the condition of the title including the presence of junior liens and a determination that the net sales proceeds are expected to exceed the investor’s recovery through foreclosure Incentive Payments. Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.

 Standardized Documentation: The program will publish streamlined and standardized documentation, including a Short Sale Agreement and an Offer Acceptance Letter.  These documents will outline specific marketing terms, describe the rights and responsibilities of all parties and establish clear timeframes for performance. Creating one standard set of documents that the industry can use is expected to minimize the complexity of these transactions and significantly increase use of the short sale option.  

Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions.  The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.

Minimum and Maximum Duration: Under the program, servicers will allow borrowers at least 90 days to market and sell the property, with possibly more time based on local market conditions. The property must be listed with a licensed realtor experienced in selling properties in the neighborhood. Marketing of the property may run concurrently with the foreclosure process; however no foreclosure sale can take place during the marketing period specified in the Short Sale Agreement as long as the borrower is acting in good faith to sell the property.  There will be a maximum marketing period of 1 year for the property,

Fees and Charges: Servicers may not charge borrowers fees for participation in the Foreclosure Alternative Program.

Property Eligibility: Any junior liens, mortgages or other debts against the property must be cleared for the property to be sold as a short sale or deeded to the servicer. The servicer can proceed with a short sale or deed-in-lieu if there is a reasonable belief that all liens on the property can be cleared. 

Program Expiration: Eligible borrowers will be accepted until December 31, 2012.  Program payments will be made upon successful completion of a short sale or DIL.

Deed-in-Lieu: At the servicer’s option, the Short Sale Agreement may include a condition that the borrower agrees to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time specified in the Agreement. In this case the borrower would have 30 days to vacate the property and would be entitled to $1,500 to assist with relocation expenses, in addition to any other funds the servicer may provide to the borrower.

We believe an educated public is vital in this market, and will continue to provide updates on this program and others. Considering a short sale? Please contact the Law office of Peter J. Goodman with any questions/concerns you may have at info@pjgoodmanesq.net or visit us at http://www.pjgoodmanesq.net 

     So what exactly is a short sale? A short sale is when your lending institution agrees to accept less money for your home than you actually owe on your mortgage. This is accomplished by having a real estate attorney negotiate with your lender on your behalf. The main reason why short sales are a viable loss mitigation alternative is to avoid a deficiency judgment where the lender can sue for the difference between the sale price at auction and the mortgage balance, including fees.  Another benefit is that the effect on the homeowner’s credit is less damaging than a foreclosure. If the homeowner chooses to negotiate a short sale, the drop in FICO score may only be 80 to 100 points as opposed to 300-400 points with foreclosure.

     The short sale process is complicated and should only be completed by an experienced professional.  You will be asked to submit a full short sale package to your lender. This will consist of financial proof that you are unable to continue paying your mortgage (tax returns, w2’s bank statements).  A letter will also be required to justify the hardship situation that necessitated the short sale.  Most lenders require that you have a contract to sell the property to a qualified buyer before they will consider this workout option.  However, Fannie Mae recently announced that they are investigating the benefit of disclosing the short sale price prior to an offer being made.

     You will need to choose a real estate brokerage to assist in the selling of your home. Your agent must have extensive knowledge of the short sale process. On Long Island, many real estate agents do not have the experience to successfully complete a short sale transaction and will just tie up a property in a long listing agreement.  Worse, many inexperienced agents poorly advise the seller, making the seller the unwitting accomplice in a fraudulent scam or otherwise delaying the transaction to the point of a foreclosure sale.

     As a homeowner, it is imperative that certain objectives are met with regards to conducting a short sale. With 16 years experience in real estate, I know how overwhelming this situation can be to homeowners. It is vital that you have someone on your side with experience and knowledge specific to short sales.

Our office can provide you with direct answers to questions you may have about short sales and other options for avoiding foreclosure. The longer you wait, the more difficult it may become to negotiate with your lender. If you are a homeowner in distress please contact our office for help at http://www.pjgoodmanesq.net