LYNN ARENDS REALTY GROUP
Can you buy a new home after a Short Sale?
Mortgage Guideline Changes
The long awaited changes to the rules on “qualified mortgages” were released earlier this year on the 10th of January. The Consumer Financial Protection Bureau has set forth these rules in order to protect borrowers from predatory lending, while simultaneously granting protection from litigation to those lenders who abide by the rules. Essentially, these new guidelines will ban the types of high risk loans that many economists say are at the root of the rapid expansion and subsequent collapse of the housing bubble. These types of predatory loans include interest-only mortgages, stated income loans, mortgages that include most types of balloon payments, and those with negative amortization causing the principal to grow over time.
Big Banks and Mortgage Regulators Reach $19 Billion in Two Settlements Addressing Mortgage Mis-“Deeds
In the past two days there have been two huge settlements between some of the nation’s largest lenders and the government. These two separate settlements hope to address both the needs of homeowners who were subjected to foreclosure abuses, and also to help ameliorate the damage done by bad home loans sold to Fannie Mae. Both of these issues were a large part of the housing bubble that precipitated the financial crisis of 2008.
Congress Extends Mortgage Forgiveness Debt Relief Act Through 2013
Congress’s late night passage on New Year’s Eve of the American Taxpayer Relief Act of 2012 extends an important resource for distressed homeowners, the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire at midnight on December 31, 2012. According to the National Association of Realtors, the American Taxpayer Relief Act of 2012 passed the Senate with a vote of 89-9 and then passed the House of Representatives with a vote of 257-167. With the extension of this Act through the end of 2013, the recovery of the housing market will continue to be assisted by the forgiveness of taxation on cancelled debt.
Before the Mortgage Forgiveness Debt Relief Act of 2007, homeowners could be taxed on unpaid mortgage debt. For example, if you owed your lender $300,000, but received only $250,000 toward the debt, then that unpaid $50,000 was considered imputed money that the government taxed as ordinary income. Under the Mortgage Forgiveness Debt Relief Act of 2007 this unpaid debt would no longer be taxed, but the Act was scheduled to sunset on December 31, 2012.
Fortunately, during the debate on how to address the upcoming “fiscal cliff” the extension of the Mortgage Forgiveness Debt Relief Act was included in the American Taxpayer Relief Act of 2012 as Sec. 202. Without the extension of the 2007 Act, any forgiven debt would be taxable, whether it be from a short sale or foreclosure sale for sellers, or from a loan modification for owners, and would likely have caused a financial burden to underwater homeowners.
This great news means that if you are a distressed property owner we may be able to help you settle your debt without increasing your tax liability.
Be sure to keep up with our blog as we learn more and post updated articles about how the fiscal cliff, and the measures being used to prevent it, affects real estate. Call us at (206) 282-4848 to set up an appointment to consult with Lynn on your property, or visit our website at www.lynnarends.com.
Freddie Mac Short Sale Changes
The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, has made recent revisions to their guidelines which make the process of having a short sale more efficient. It allows the company that services your loan the ability to approve your short sale without bringing the file to the mortgage insurer for review. In addition, these revisions apply to FHA and FNMA (Fannie Mae) as well. That means that these revisions that went into effect on November 1 will apply to most Americans, including many who have a mortgage here in Washington.
The goal of these guidelines is to make it easier and more efficient for homeowners to pursue a short sale. By putting the control in the hands of the loan servicers, it allows these parties to make decisions regarding the sale of the distressed property, and makes the process much more streamlined. If you meet certain criteria these loan servicers are now able to give approval themselves, without ever having to approach the investor with the file. This is great news for any homeowner considering a short sale because it means that now one of the most cumbersome and time consuming steps has been eliminated. Now, a short sale is not only much faster, but more simple as well.
- A divorce or legal separation from your spouse
- A death of the borrower or primary wage earner
- A long-term permanent disability of the borrower or dependent family member
- An employment transfer or job relocation (this includes permanent changes of station for service members)
That being said, borrowers that do not meet any of these four criteria, and are current on their mortgage payments still have short sale options. You may still be eligible for the loan servicer to send the file to the mortgage investor for review if the loan servicer feels that the borrower should be considered for a short sale. This “classic short sale” process is still possible; however these new guidelines allow borrowers who are qualified to streamline the process.
Based on a Broker’s Price Opinion, or BPO, Freddie Mac will offer guidance on choosing a listing price. The BPO should be done as early in the process as possible. This guidance is passed on to the borrower and their broker through the servicer of the loan, but the final decision on the listing price is up to the borrower. Bear in mind that sometimes the listing price recommended by the BPO may not meet Freddie Mac’s net proceeds requirement. In order for the transaction to be approved, the net proceeds must meet Freddie Mac’s requirements after deducting the closing costs and commissions.
There are other aspects of these new “standard short sale” guidelines that are not new. For example the timelines are still the same as with the “classic short sale.” That means that the loan servicers must acknowledge receipt of the purchase offer within three days. They must also let you, the borrower, know within five business days if there is outstanding information needed in order to evaluate the offer. Also, the loan servicer must respond to the offer with a decision within 30 days of receiving the purchase offer. If this is not possible, the loan servicer must offer weekly status updates to keep the borrower informed.
Other requirements that are a part of Freddie’s new “standard short sale” are that the home not be resold within thirty days of the short sale. Also, within ninety days the property is not allowed to be sold for more than 120% of the short sale purchase price. These guidelines are in place to prevent fraudulent home “flipping.”
Assuming all of the above criteria are met, Freddie Mac will not pursue the borrower for the deficiency. That is permanent debt relief for underwater homeowners; their lender will never pursue them to pay the deficiency.
Because this new Freddie Mac “standard short sale” is so similar to the government HAFA program, they will be phasing out their participation in HAFA at the end of the year. Similar to HAFA, the “standard short sale” program from Freddie Mac will allow up to $3,000 dollars in relocation assistance for the borrower upon completion of the transaction. It is important to understand that this is TOTAL relocation costs. For example, if your new employer offers you $1,500 then Freddie will only allow an additional $1,500. Also similar to HAFA, second lien-holders may receive up to $6,000 dollars from the lender; they may not receive anything from the borrower.
With the expiration of HAFA on December 31, many lenders are looking to make changes. Bank of America has already begun to transition in preparation of the expiration of the Home Affordable Foreclosure Alternative.. Beginning on December 14, 2012 Bank of America stopped issuing out short sale agreements to borrowers. If you already have a fully executed short sale agreement it may be accepted if it is received and uploaded by the close of the year. If you are not in these two categories, you loan may be considered for the Bank of America Cooperative Short Sale Program, or a traditional short sale. It is also Bank of America’s approach to quickly and amicably settling borrowers’ short sales. The Cooperative Short Sale is appealing for those who qualify, because the program allows homeowners relocation assistance.
All of this adds up to good news for Washington property owners who are underwater on their home. As the process becomes smoother it is possible for more borrowers than ever to get approval sooner.
Be sure to come back and read our blog regularly for more updates on this and other topics. If you are a Washington homeowner, and would like to learn more about short selling your home, please call our office at (206)282-4848 or visit our website at: http://lynnarends.com/ .
The Mortgage Debt Relief Act: What Does It Mean?
