Types of Short Sale Programs

Repost – Types of Short Sale Programs by Jonathan Katz

Types of Short sale programsThere are different types of short sale programs from which you can choose best suited for you. Choosing a short sale program is really critical because selection of wrong program will not only cause the rejection of short sale, but also will waste your time money and resource. There are a number of short sale programs, but keep in mind that you may not be able to choose the specific programs. The selection of program may depend upon the type of loan and investor.

Different Types of Short Sale Programs:

Some of the most common short sale programs are given here to provide you an understanding of the options available to you.

Traditional Short Sale

A traditional short sale is the most common type of short sale program. Some short sale sellers don’t want the delay that can be inherent in government programs, so even though they might qualify for a Bank of America HAFA short sale, they opt for traditional short sale program just to avoid the delayed processing. For traditional short sale you will need to provide the hardship letter along tax returns and other documents. More and more banks will say, “Yes” to a short sale and “No” to a foreclosure.

VA Short Sale and FHA Short Sale

If your current loan is secured by the VA, then you have VA loan and if it is insured by FHA, you have an FHA loan. The best way to know about your loan plan whether it is VA or FHA, is looking at the percentage of original sale price. In the form of VA, your loan balance is 100% of the original sale price. If the original balance was closed to 97% of the sale price then it is probably an FHA loan.

The main things to know about a VA short sale and FHA short sale:

  • Neither type of loan will qualify for the HAFA short sale program, but you can receive a relocation incentive.
  • Due to the additional layer to the approval, your proposal will take more than the normal time required to close the short sale.
  • The government will pay for a full-blown appraisal (no BPO) and expect market value.

HAFA Short Sale Program

In case you have two or more than two lenders then you will need the participation of all lenders in HAFA short sale program to qualify for HAFA short sale. The HAFA is government short sale program that with few limitations can pay you or your bank up to $3,000 to do the short sale. In the starting of HAFA program guidelines were very strict, but with the passage of time these have been made relaxed. You can do a HAFA short sale on investment property now as well. The biggest benefit of HAFA short sale is that your bank has to release you from the personal liability and you don’t have to face deficiency judgment.

Freddie Mac Short Sale

Freddie Mac is also a government sponsored entity. If the Freddie Mac is an investor, then you will need to do a Freddie Mac short sale. This will be adding an extra layer to the approval of the short sale. Freddie Mac will need a long affidavit to be signed. In the case of Freddie Mac home will be sold at “as is” condition. Unlike many short sale investors, Freddie Mac will allow the seller to rent back for a few months.

Fannie Mae Short Sale

Fannie Mae is a government-sponsored entity. If Fannie Mae is the investor, then you will need to do a Fannie Mae short sale and this will be adding and additional layer of approval to the short sale process.

You might have a problem in that short sale if you have a second loan and that second lender demands more money than Fannie Mae would allow you. It may require dealing with second lender before opening the short sale at Fannie Mae. Fannie Mae normally does not postpone auctions. If you are closer to the trustee’s auction than you are to closing the short sale, Fannie Mae may opt to choose the foreclosure.

Fannie Mae HAFA Short Sale

Fannie Mae HAFA short sale program is considered the most complex short sale program. The government has been trying to make the processing of this program easy. It is possible that short sale would be delayed if your Fannie Mae short sale is through the Bank of America. You may have some relaxation if you are the principal resident of your home, but Fannie Mae no longer requires occupancy as a condition of the short sale. It is also no longer a requirement that your loan be delinquent.

Freddie Mac HAFA Short Sale

A Freddie Mac HAFA short sale needs to be preapproved in advance. This is also one of the complex short sale programs. The preapproval in advance itself is a biggest problem for some banks. Every bank does not seem to understand this preapproval requirement for a Freddie Mac HAFA short sale, but if your short sale program is approved by Freddie Mac and your servicer, it moves really quickly. You can expect to get approval within 30 to 60 days.

Cash for Short Sale Programs

Getting the cash for sale is the wish of every short seller, but there are rare chances that debt is forgiven and sellers are released from the personal liability. Consulting your bank is the better way to find out that if you can get cash for sale or not.  The Bank of America cooperative short sale or the Bank of America HIN Incentive programs are considered the most famous cash for short sale programs. There may be sellers who could qualify for both types of Bank of America programs and get paid.

Types of Short Sale Programs by Jonathan Katz

A Closer Look at Qualified Mortgages – Starting 1/10/2014

By Jeff Bounds  |  December 10, 2013

Big changes are coming for residential mortgage lenders starting next year.  That’s when new rules from the federal Consumer Financial Protection Bureau (CFPB) go into effect concerning the origination of home mortgages.

Fannie Mae has made some changes to its eligibility standards as a result, but before looking at those, it’s helpful to understand the new Ability-to-Repay and qualified mortgage (QM) rules.

Underlying the QM concept is the Ability-to-Repay rule that the CFPB issued on January 10, 2013. This rule, which takes effect on January 10, 2014, requires mortgage lenders to consider consumers’ ability to repay their home loans before extending credit to them.

Ability-to-Repay Rule

Broadly speaking, the Ability-to-Repay rule requires a lender to only make a loan that the lender reasonably believes the borrower has the ability to repay at the time the loan is made. Borrowers must provide financial documentation to support this, and lenders must verify all the documents that the borrower provides.

Under the Ability-to-Repay rule, lenders have to consider and document at least eight underwriting criteria in deciding whether to lend money for a home purchase or refinance, said John Burley, associate general counsel for Fannie Mae. The criteria are:

  1. The borrower’s current or expected income or assets.
  2. The borrower’s income and employment status if the borrower is claiming to have employment income.
  3. Monthly payments on the loan, including any possible changes if the interest rate is adjustable.
  4. Monthly payments on other loans being made at the same time secured by the property that the lender is aware of.
  5. Monthly costs of other mortgage-related obligations the borrower has, such as homeowners’ association dues or property taxes.
  6. Other loans and debts the consumer has, such as alimony, child support, or credit card debt.
  7. The borrower’s debt-to-income ratio.
  8. Credit history.

What Makes a Mortgage Qualified?

Think of a QM in three ways. At one level, it’s a loan that meets various standards that the CFPB has established. In a more simple sense, it’s a loan for which the lender presumes the borrower has the ability to repay. And for the lawyers in the crowd, the granting of QM status provides a defense for lenders against legal actions that borrowers can now bring over loans they’ve taken out and later claim they can’t afford under the ability to repay standards.

Under CFPB rules, a QM must have the following characteristics:

  • Loans may not have terms that extend beyond 30 years, and all principal must be paid in substantially equal installments over the life of the loan.
  • Points and fees, which are costs that the lender charges to the borrower during the process of applying for the loan, are capped at 3 percent of the total amount the borrower takes out for loans of $100,000 or more.

A Degree of Legal Protection

A major reason why lenders are interested in QM is that they can receive a degree of legal protection from borrower lawsuits if the borrower claims the lender failed to consider the borrower’s ability to repay the loan. Broadly speaking, there are two classes of QMs. The amount and type of legal protection the lender gets will depend on criteria of the QM loan they’ve made:

  • Safe harbor loans have annual percentage rates (APR) that are not more than 1.5 percentage points (or 150 basis points) of the “average prime offer rate” (APOR). (The APOR is determined weekly and relates to Freddie Mac’s survey.) A safe harbor loan is harder for the borrower to challenge in court because the lender is conclusively considered as having fulfilled the Ability-to-Repay rule.
  • Rebuttable presumption loans have APRs more than 1.5 percent above the APOR. The lender in this case gets less legal protection than with safe harbor loans. Borrowers with such loans can potentially win a lawsuit based on the Ability-to-Repay rule if they can prove that the lender didn’t give adequate consideration to living expenses after the mortgage and other debts they were aware of.

Fannie Mae’s New Eligibility Rules

Starting next year, Fannie Mae will impose new limits on the types of loans it can buy from lenders. This is because of instructions that it received on May 2, 2013, from the Federal Housing Finance Agency, which serves as its regulator and conservator.

For loans with applications on and after January 10, 2014, if a loan is subject to the CFPB’s Ability-to-Repay  rule, then Fannie Mae can buy it only if:

  • It is “fully amortizing,” meaning that the borrower can pay the entire principal by making all monthly payments on time. This means Fannie Mae cannot accept negative amortization, balloon or interest only loans for purchase.
  • The term of the loan is a maximum of 30 years.
  • Points and fees are less than 3 percent of the total amount of the loan (higher limits apply to loans under $100,000).

The first two items are relatively straightforward. The third is not. Burley notes that a plethora of rules govern what lenders must include, or may exclude, in points and fees.

“It’s very technical,” he said. “That’s where most of the concerns will be.”

If a loan is exempt from the Ability-to-Repay rule, points and fees must be less than 5 percent of the total loan amount for Fannie Mae to buy the loan.

It’s not Fannie Mae’s role to establish whether a given loan is a QM, nor whether it is of the safe harbor or rebuttable presumption variety. The burden for complying with those regulations rests with the lender.

Nevertheless, Fannie Mae recognizes that lenders face challenges in complying with all of the new regulations. Therefore, during a transitional period of as-yet undetermined length after January 10, 2014, Fannie Mae will not require a lender to buy back a loan on the basis of a Fannie Mae determination that the loan doesn’t comply with the QM points-and-fees requirement, as long as the loan in question is otherwise eligible for Fannie Mae to purchase.

However, lenders will be required to buy back those loans from Fannie Mae if a court, regulator, or other authoritative body determines that points and fees violated CFPB standards.

For More Information

Since the CFPB made the rules governing matters such as QM, Ability-to-Repay, safe harbor, and rebuttable presumption, that agency is the first place lenders should go to get questions answered.

Lenders may want to start with the CFPB’s website, which has a lot of resources to help lenders comply with the new rules. MBAA is also another good source of guidance.

In addition to going to the CFPB, lenders may also consult with the various law firms and advisory shops that are offering advice on complying with CFPB regulations. Fannie Mae can’t endorse any outside firm’s advice for legal compliance.

Fannie Mae has also published guidance around the eligibility requirements, including SEL 2013-06, LL 2013-05, LL 2013-06, and LL 2013-07.

Fannie Mae: Technology has Role to Fill in Mortgage Shopping Experience

Fannie Mae: Technology has Role to Fill in Mortgage Shopping Experience

Jan 2 2014, 12:20PM

A recent study by Fannie Mae found some distinct differences in the ways higher income earners look for a mortgage compared to lower income earners.  Steve Deggendorf, Fannie Mae’s Director of Business Strategy looked at the shopping behaviors of the two groups through the company’s regular National Housing Survey during the second quarter of 2013.

Deggendorf not only found distinct differences in the shopping behaviors of higher and lower income mortgage borrowers but also found opportunities for online tools that could improve the ability of all borrowers to shop for a mortgage.  Careful shopping, he says, “could help mortgage borrowers obtain better outcomes, including lower costs, fewer surprises at the loan closing table, and higher long-term satisfaction with their choices.”

The study defined the two income groups as those with family incomes below $50,000 and those above $100,000 and found that in general the higher income borrowers were more likely to rely on their own mortgage calculations and use of tools to assess how and how much to borrow.  They were also more likely to pick a lender based on its competitiveness.  The lower income group was more likely to rely on real estate agents, mortgage lenders, family, and friends for advice and recommendations.  In addition the higher income group more often said that a better ability to compare multiple loan offers would make shopping easier while the lower income respondents wanted earlier to understand loan terms and costs.

The higher income group tended to use online shopping about twice as much as the lower income group however all groups would like to increase their usage indicating that the Internet will likely play a growing role for all borrowers and that there is a need for shopping enhancements.



The study found that those who have obtained a mortgage in the last three years were more likely to have used technology in their mortgage shopping than borrowers from an earlier period.  Deggendorf said this could be partially explained by the growing use of on-line tools in general but also by recent borrowers having higher income and education levels than earlier ones.



Despite a general increase in the use of mobile technology (tablets and smart phones) respondents said they tended to rely on their personal computers when shopping for financial products and were also likely to continue to do so.   Respondents also indicated that social media would probably continue to play a small role in mortgage shopping as is currently the case.

Deggendorf says many researchers have observed that the use of online research and mobile tools enable consumers to obtain product reviews and compare prices both at home in in stores.  He says that only time will tell what inroads enhanced technology tools allow us to make in improving outcomes for more complex activities such as mortgage shopping.  They could, for example, offer real-time information and education where and when needed such as when house-hunting or sitting face-to-face with a lender.  “Enhanced online tools, especially given the aspiration to use them much more often in the future, could help consumers of all incomes to become better mortgage shoppers and achieve better outcomes by addressing the issues they think will make the process easier, such as enhancing their understanding of mortgage terms and costs and their ability to make simultaneous comparisons of loan terms from multiple lenders.”