Approval to Participate

What is an Approval to Participate? 

It is a document that HUD generates on FHA loans that are seeking short sale approval.  The best way to go about it is to hire a Realtor that has the experience and knowledge of the process AND is succesful in closing short sales. 

First you must  contact your mortgage servicer and ask them for an application or the Request for Pre-Foreclosure Sale and Affidavit for FHA.  They will also send along several other documents and a list of the financial information that they will need.  These will be reviewed and in 14-30 days you’ll get an answer back as to whether you are approved to participate.

The Approval to Participate will state the price the home is to be listed at, the NET dollar amount acceptable, how the property is to be maintained, and the borrower’s incentive compensation.

If you would like more information on the HUD FHA Short Sale process please contact us at 734-629-7222.

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Provisions of Home Affordable Foreclosure Alternatives

Provisions of Home Affordable Foreclosure Alternatives

 

• Complements the Home Affordable Mortgage Program by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents and time frames/deadlines.
• Provides the following financial incentives: $3,000 for borrower relocation assistance; $1,500 for servicers to cover administrative and processing costs; up to $2,000 for investors who allow up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a 1-for-3 matching basis.
• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions and borrower motivation and cooperation.

Update on Government Programs for Short Sales

About a year ago, the Obama administration launched two new prongs of its foreclosure-prevention effort, trying to crack two of the toughest problems that have emerged from the foreclosure crisis.

Neither has had much of an impact, according to data released Friday by the Treasury Department.

One piece was designed to help modify second mortgages such as home equity loans. The other was supposed to assist homeowners with the notoriously difficult process of completing so called “short sales” – ones in which banks agree to let homeowners avoid foreclosure by selling their homes for less than the total mortgage amount.

Treasury said only about 17,000 homeowners have received modifications of second mortgages through the program even though 17 mortgage companies have signed up. That compares with 557,000 borrowers that have received permanent modifications of first mortgages through February through the Obama administration’s flagship Home Affordable Modification Program. Treasury didn’t say how many of those borrowers have second mortgages.

Article from Wall Street Journal at  blogs.wsj.com

 

What is a mortgage modification?

What is a mortgage modification?

A mortgage modification is a process through which your mortgage lender changes any or all of the following:

• Your interest rate
• Your principal balance (through a reduction)
• Your loan terms (example: from an adjustable to a fixed rate)

This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments.

Do I Qualify for a Short Sale?

The qualifications for a short sale include any or all of the following:

1. Financial Hardship – There is a situation causing you to have trouble paying your mortgage.
2. Monthly Income Shortfall –  A lender will want to see that you cannot afford, or soon will not be able to afford your mortgage.
3. Insolvency – The lender will want to see that you do not have significant liquid assets that would allow you to pay down your mortgage.

You are not alone! Please give me a call for more information  - 734-629-7222 or write me at info@waynecountyshortsales.com

What is “Making Home Affordable?”

The Making Home Affordable Program is part of the Obama Administration’s broad, comprehensive strategy to get the economy and the housing market back on track. The Making Home Affordable Program offers strong options for homeowners:
(1) refinancing mortgage loans through the Home Affordable Refinance Program (HARP),
(2) modifying first and second mortgage loans through the Home Affordable Modification Program (HAMP) and the Second Lien Modification Program (2MP) and
(3) offering other alternatives to foreclosure through the Home Affordable Foreclosure Alternatives Program (HAFA).

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

HAFA Short Sale Directive

1. Lenders will be preapproving short sales- A big reason that short sales fail is that lenders won’t work with agents to tell them what price they should list the property at. Then when a real estate agent does get a great offer the lender takes 90 to 180 days to evaluate the offer and during that time the buyer walks and the property goes down in value another 20 percent. This won’t happen with this program implemented.
2. Lenders must fully release borrowers- Many sellers biggest fear is that their lenders will come after them for the deficiency left over after a short sale. There are some lenders that have standard non negotiable acceptance letters that they refuse to change that specifically reserve the right for further collection on that amount. Some lenders will require the borrower to sign a promissory note for that difference. You won’t have to worry about any of these big fears.
3. No more out of pocket demands from second lein holders- Some lien holders have in the past asked for sellers to bring cash to close. Now it will be ZIP!
4. Three thousnad is maximum for 2nds- 2nd lien holders and 1st lien holders have traditionally fought each other about how much the 2nd mortgage should get. Now there is one less barrier to your home being sold on a short sale.
5. Borrowers can be paid up to 1500- Sell your house and you get paid out of closing as a reimbursement for your moving expenses.
6. Response in 10 days- Of all the requirements… THIS IS AWESOME! A 10 day response will make short sales seem almost like an ordinary sale… except better because if you are selling on a short sale you have more freedom to price your property properly.
7. No cutting commission- Sellers typically don’t worry about an agent’s commission. However a well paid agent can afford to spend the time he or she needs to really take care of you.

So who gets to take advantage of this program? The following conditions must be met:

1. Primary residence- The short sale must be the borrower primary residence. This could be bad news for investors trying to get rid of their upside down portfolio as servicers will be rushing to meet the requirements for home owner occupants and investors may get ignored. This may get servicers moving with a speedy processes that end up benefiting the investor looking to short sale his rental as well.
2. Mortgage must be 1st lien and older than January 2nd 2009- So anyone that is buying right now – know that this program might not apply to you.
3. Verified hardship- The mortgage must be delinquent or a default must be unavoidable in the near future.
4. Balance limit- The total delinquent balance must be equal or less than $729,750.
5. Debt to Income is greater than 31 percent gross income-  Your debt to income ratio (mortgage payment to total gross income) must be more than your 31 percent. If that is not the case then the logic is that you should make the payments and keep your home through the HAMP modification program. Before you participate in the HAFA program you need to be evaluated for eligibility in the HAMP modification program to see if you can keep your home.  Just because you could qualify to keep your home under the HAMP program does not mean that you cannot still participate in HAFA and short sale your home.

If your mortgage is a Fannie Mae or Freddie Mac mortgage then this program will be available to you. For some servicers it will be optional for them to participate in this program however it may make financial sense for them to do so.

The HAFA Short Sale Directive is effective April 5, 2010!

What documents will the bank need to consider my short sale?

Below is the package we must compile before your lender will  consider a short sale:

• Authorization to release information form
• Hardship Letter (see below) 
• Financial Worksheet
• Listing agreement
• Copies of tax returns (last 2 years for everyone on the note)
• Copies of all bank statements  (last 2 months for everyone on the note)
• Copies of pay stubs (last 2 pay periods )
• Signed purchase offer  
• HUD 1 closing sheet
• CMA with pictures
• Application for Pre-Foreclosure sale program (Only if FHA , HUD form 90036)
• Homeownership counseling form (Only if FHA , HUD form 90038)

 

As listed above, you will need to submit a “hardship letter,” explaining the circumstances that make it impossible for you to pay the full amount of the loan. You need to be able to show true financial hardship. Someone with the assets or the income to pay is unlikely to be considered.

What is considered a hardship?

Unemployment

Reduced Income

Divorce

Separation

Medical Bills

Too Much Debt

Death of my Spouse

Death of a family member

Payment Increase

Business Failure

Job Relocation

Illness

Damage to Property

Military Service

Incarceration