Scott Gillen, CMBStewart Lender Services

Uncovering The Mysteries Of The Short

Sale Process

Making Home Affordable (“MHA”) is an alphabet soup government initiative to reduce foreclosures by providing:

• HAMP and 2MP- Home Affordable Modification Program

• HARP-Home Affordable Refinance Program

• HAFA-Home Affordable Foreclosure Alternatives

*The program was announced March 4, 2009 but continues to evolve with frequent clarifications and changes. It expires 12/31/2012.

Overview

Eligible Conventional Loans1. FNMA (except recourse loans) - securitized or owned2. FHLMC3. For recipients of new TARP funds: “Owned” portfolio and

securitized loans (except where PSA prohibits)4. FHA Loans

Eligible Borrowers:• 31 days or more past due (2 payments)• Borrowers in foreclosure• Borrowers in active bankruptcy• Borrowers in litigation• Current borrowers in “imminent danger of default”

Eligibility Requirements

• Must have a hardship

• Eligible Properties• Single Family• 1-4 unit• Condos• Cooperatives• Approved manufactured housing

• Only owner occupied/primary residence

• Excludes vacant or condemned properties, “but property can be vacant for the previous 90 days if the borrower moved 100+ miles for work and did not buy another home”

Eligibility Requirements

Balances:• Currently, 1st lien Conventional loans with UPBs up to

$729,750 (1 unit) to a max of $1,403,400 (4 unit)

Origination Dates: Loan must have been originated prior to January 1, 2009

Eligibility Requirements

• Borrowers Fully Underwritten with verified income to determine 31% DTI

• Occupancy Verified

• Trial modification period required

• Final Modification documents are issued near end of Trial Modification period.

• Borrowers with TDTIs above 55% required counseling

• FC Temporarily Suspended • Some exceptions exist.

Modification Process

7

• Hardship Affidavit / Imminent Default• Most recent signed income tax return• Proof of residency (e.g., current utility bill)• IRS Form 4506-T• Borrower’s monthly income documentation• Credit report on each borrower• Form 1126, Borrower Financial Statement• Borrower’s other indebtedness (e.g.,

alimony)• Property Value (AVM / BPO)

Borrower Information

HAFA is part of HAMP and provides:

• Incentives to Servicers and Borrowers who utilize short sale or Deed in Lieu’s to avoid foreclosure on a loan ELIGIBLE UNDER HAMP

• Servicers required to implement prior to 4/5/2010

Home Affordable Foreclosure Alternatives (HAFA)?

• Lenders who participate in the HAMP program. Additional lenders are eligible to apply

• Approved lenders can be found at

www.MakingHomeAffordable.gov

• At this stage, loans owned by FNMA and FHLMC are not included in the program

www.fanniemae.com/loanlookupwww.freddiemac.com/mymortgage

Who Is Participating In HAFA?

Before HAFA:

Risk of short sale success was primarily borne by the listing broker, the seller, and the patience of the buyer

All negotiations were done after an offer was made

All parties were subject to extended timelines for approval to await• Title Review• Junior Lien Negotiation • Mortgage Insurer Negotiation• Valuation Review• Purchase Price Renegotiation• Commission Adjustments• Title Curative Work

Home Affordable Foreclosure Alternatives (HAFA)

• Reactive vs Proactive Management

• Mortgage Insurance/Junior Lien Negotiations

• Title/Curative Issues

• Myriad of Investor/MI Company Guidelines

• Borrower Participation

• Buyer Eligibility/Tire Kickers

• Regional Value Issues Causing Record Volumes

• Entitlement Issues

Pre HAFA Short Sale Challenges

• Borrowers are fully released from future liability for the balance of the debt

• HAFA uses standard processes, documents and timelines

• Provides financial incentives to borrowers, servicers and investors

• HAFA specifically prohibits the reduction of commission by the lender

HAFA Improvement Process

• Servicer must develop a policy that describes basis under which HAFA is offered to borrowers consistent with investor guidelines. This policy should consider: Loss Severity Local Market Conditions Foreclosure Timelines Borrower Engagement and desire to participate

• Servicer may not solicit a borrower for HAFA until the borrower has been evaluated for a HAMP Modification, alternative modification or any other home retention offer available

• If borrower meets other eligibility requirements, servicer must be considered for HAFA before the borrowers loan is referred to foreclosure. Servicer must consider borrower within 30 calendar days of the date the borrower:

Borrower is not offered a Trial Period Plan for qualification reasons Do not successfully complete a Trial Plan Borrower defaults on HAMP Modification Formally requests a short sale or DIL

Requirements Of Participating Servicers

• Loss Severity and Recovery Review• Minimum Acceptable Proceeds• Defines what the bank will accept when you list the property

• Financial Information is Required• Borrower Contributions• Short Sale Agreement• Cannot not be actively pursuing modification

• Property Valuation• Market Analysis• Independent BPO’s• Appraisals• If short sale successful, will add to loan balance

• Title Review• Not required, strongly recommended• Identifies the Appropriate

Servicer Considerations

• Must be listed with licensed real estate professional regularly doing business in community where property is located

• Fixed termination date (listing period) of not less than 120 calendar days

• Shows the list price or net proceeds (net after subtracting allowable costs)

• Amount of closing costs servicer will permit to be deducted from gross sales proceeds or list of reasonable closing costs it will permit be deducted

• Amount of real estate commission to be paid, not to exceed 6%

• Contingency clause, must include notification to purchasers that sale is subject to lender approval

• Must be an arms length transaction, cannot sell for 90 days

Requirements Of Short Sale Agreement

• Notification that the borrower will be released from the debt and any ongoing liability

• Agreement that upon successful closing, borrower will be entitled to receive relocation assistance of up to $3000.00

• Notification that the servicer may allow for some portion of the gross sales proceeds may be paid to subordinate lien holders

• Notification that transaction may have tax consequences

• Notification that servicer may require payments be made during listing period equivalent to 31% of gross income

• Agreement that as long as borrower performs with terms of SSA, servicer will not complete foreclosure sale.

Requirements Of Short Sale Agreement

• Sign and return the SSA within 14 days

• Provide all qualifying financial information and sign required documents

• Cooperate with listing broker and be responsive to servicer

• Maintain the interior and exterior of the property

• Provide clear and marketable title (assist servicer in identifying and providing info)

• Make monthly mortgage payments required under SSA

Obligations Of The Seller (And Realtor) Involved

Within three days of the offer, broker must submit a Request for Approval of Short Sale (RASS) and include:

• Sales contract and all addenda

• Buyers documentation of funds or pre approval on loan

• All information on subordinate liens

What Happens When You Get An Offer?

• Defined approval/disapproval response timeline• TEN BUSINESS DAYS

• Delegated authority for approval

• Defined time to close• Minimum 45 days from sales contract

Servicers Obligations After Offer Submitted

• Submit Alternative Request for Approval of Short Sale

• Servicer will require sellers be reviewed for eligibility and may be offered a loan modification

• You can assist by working closely with borrower to get all financial information gathered and submitted to the servicer

What If You Already Have A Contract?

HAFA Foreclosure Alternative Incentives$3000.00 Relocation Inventive to the Seller on the HUD

$1500.00 Incentive to Servicers for an approval

Up to $2000.00 to the investor (1/3 of the payment to the junior lien holders)

HAMP Modification Incentives :

Servicers:

$1000.00 for successful mod trial

$1500.00 for IDI LoanIncentives: Other available incentives to servicers & borrowers if the modified

payment reduction is 6% or more: • Borrowers: “Pay For Performance” principal reduction incentive, of $1000.00

annually up to 5 year• Servicers: “Pay for Performance” for three years, $1,000.00 annually

HAMP / HAFA Incentives

Junior Liens• HAFA allows for junior lien holder to be paid no more than 6% of the UPB with a

cap of $6000.00• Split amongst all junior lien holders• Junior lien hold may not require contributions from agent or seller as condition

of releasing liability

Mortgage Insurers• Mortgage Insurers cannot request contribution from the borrower

Title Issues• Imperative that you look at title up front. Focus on deals that can be done

Borrower/Property Eligibility

Borrower Cooperation

Impediments To Short Sale Success

• Realtors can assist borrowers with this process in the following ways:• Stress the importance of providing all required documents to the lender

in the timeline required.

• Assist with hardship letter

• If you suspect they have reserves, tell them up front to expect to make a contribution

• Advise/counsel borrowers on accuracy of income docs

• Ensure that they make all required payments during the listing period if required to do so.

What Can You Do To Help?

• Explain the Short Sale Agreement (SSA)

• Set reminders and stay on top of the borrowers for their obligations

• Thoroughly document property deficiencies for lender

• Be attentive to the listing timelines and aggressively market the property

• Work very closely with the buyers realtor and make sure their buyer is prequalified.

• ORDER AND REVIEW TITLE IN ADVANCE

• Assist the seller in identifying and clearing those judgments and liens

• Find out if the loan has mortgage insurance

• Be polite, courteous and helpful.

What Can You Do To Help?

• Managing Expectations • Misinformation • Volumes – requests for help, follow up phone calls• Switching gears to this new program• Clarifications and changes • Prior agreements • The role of increasing unemployment or underemployment in resolving defaults • Sources and forms of borrower information: paper, email, phone, fax, image. No

standard form. • If you can’t map it, you’re talking manual entry. And that means delay.

• Burnout• Training expanded staff• Borrower engagement

• Borrowers have to want help• Documentation

• Borrowers have to submit the required documentation• Borrowers have to be cooperative, whatever option is chosen

Servicer Challenges

Home Affordable Modification Program – March 2010

Number of Eligible 60+ Day Delinquent 3,398,612

Number of Trial Period Plan Offers Extendedto Borrowers (Cumulative)1,436,802

Number of Trial Modifications Started(Cumulative)1,166,925

Pending Permanent Modifications108,212

Permanent Modifications227,922

Huge Undertaking

HAMP Participating Servicers

• Approximately 85% of eligible mortgages are covered by HAMP participating servicers

• 109 servicers have signed servicer participation agreements to modify loans under HAMP and will have to comply with HAFA. These participants service loans owned or guaranteed by Fannie Mae or Freddie Mac, loans in portfolio or loans serviced on behalf of others.

• Approximately 2300 participants service loans owned or guarantee by FNMA or FHLMC. These servicers automatically participate in HAMP.

HAMP Servicer Coverage

Participating Servicers

Not getting timely answers?

escalations@hmpadmin.com

There will be a formal audit process from the HMP compliance agent, Freddie Mac.

What If You Have A Problem With A Participating Lender?

Questions?

For more information, please contact:

Susan WilkinsVP, Strategic Alliance ManagerStewart Title Guaranty CompanyTel: 361-994-9444reallivinginfo@stewart.com