Short Sales on Current Accounts?

[tcowan17]

Two questions are commonly asked by those entering into the short sale business.

The first concerns whether a lender will consider a short sale on an account that is current.

Lenders will consider a short sale on an account that is not behind; however, when this happens it is the exception to the rule.

Understand that the banks (Countrywide,Flagstar, B of A, WAMU, etc.) don’t make the rules. The same is true for conventional or privately held loans; most of those follow FNMA’s guidelines to a large extent.

The big investors make the rules, and for the most part their guidelines are posted publicly.

For example, from Fannie Mae’s Seller/Servicer Guidelines, posted on AllRegs.com and at efanniemae.com:

Fannie Mae Singe Family 2006 Servicing Guide
Part IV: Delinquent Mortgages
VII, Chapter 5: Loss Mitigation Alternatives (01/31/03)
VII,501: Determining a Borrower’s Eligibility for Loss Mitigation

The servicer also must make sure that the borrower understands that offers of loss mitigation alternatives are just that—offers—and that he or she is under no obligation to agree to one of the offers. A servicer must handle workouts that involve the borrower’s relinquishing ownership of the property (assumptions, preforeclosure sales, deeds-in-lieu) carefully to ensure that the borrower’s rights are appropriately protected. It also is important that both the servicer and the borrower understand that our loss mitigation workout alternatives are designed to assist a borrower who is experiencing a financial hardship—particularly (but not exclusively) one whose property is in an economically distressed area. We expect a borrower who has the ability to meet his or her financial obligations to continue to do so. In addition, we require a borrower who agrees to a loss mitigation workout alternative to contribute some funds to reduce our loss on the mortgage if he or she has the financial ability to do so."

That’s not to say that there isn’t a way around a shaky hardship, but by very definition a short sale or pre-foreclosure sale is a way to prevent the bank or investor from owning a property through REO and to allow a homeowner to mitigate all or some of his debt. If there’s no hardship, why would the banks bother? In another posting it was stated that Countrywide wouldn’t ask for a hardship letter, but EVERY file we have negotiated (and we’ve negotiated hundreds in the past five years) needed a hardship letter or some sort; if not, the file died.

FNMA, FHLMC (Freddie Mac), FHA and VA all require that the loss mitigation files have a SIGNED hardship letter in the file. They audit a random sampling of files, and the scores on the audits have a direct financial impact on the bank, through servicer scores and tier ratings (amount servicer’s are paid for servicing the loan).

The second question concerns the short sale package and what is needed.
I’ve seen a few blogs posted by individuals fishing for business by telling investors and real estate agents what they want to hear.

While getting a short sale package together with all the docs can be problematic, it’s important. Our experience has shown that cases will be declined if that hardship does not match the statements, paystubs, and other information from the homeowner that makes up part of the package.

In a recent posting, it was stated that all that is needed to start the short sale process for any bank is a net sheet/HUD, proof of income, and offer.

This may be accurate for lenders like Countrywide, but in our experience this only occurs in four instances:

A property where there is no estate and either no probate or probate is completed. There is no need for hardship because the owner is deceased; in this case, there would be no proof of income either.

A discharged bankruptcy will sometimes create a situation where the homeowner cannot be compelled to release certain financial documents. The bank will order a BPO or appraisal and review the offer based on that and the investor/PMI guidelines for that loan. Hardship would be bankruptcy, no other reason needed. Most times the homeowner has to sign a letter asking for the short sale and refusing to release any other information.

A large scale disaster, such as Katrina and Rita in Louisiana. Some lenders didn’t require a complete hardship package, although they always asked…most of the time, the documents no longer existed. We saw this again with the wide-spread fires in southern CA last summer. Again, rare, and the investor will follow FEMA as large areas are declared disaster sites; typically it’s county-wide or greater area. There will be a lender letter released, often publicly, lifting or waiving certain guidelines for a specified period of time.

This may be the most common (although not at all common) is a HELOC or 2nd mortgage that has been charged off but hasn’t been foreclosed on yet. There’s typically some delay, at least in Michigan, so there is a window about 60 days wide. In this case, the loan is already dead; the bank would review the offer on it’s own merit. We’ve seen these done with no BPO if the offer was good.

Again, while some lenders may consider a short sale on a property not currently behind on payments, this is the exception. You should set expectations accordingly with the homeowner or whomever you are working. Likewise, banks do review the homeowner information in the package, and they do read hardship letters.

[jkatz]

[SIZE=“6”]Danger:
Please beware of those that may misinform and confuse you, costing you more time and money.[/SIZE]

As some valid points have been made above please refer to your bank for the correct answers to your situation. As we have worked for the banks and continue to work with the banks we are a source of information you can not only trust but you can verify.

There is no exception, to any rule (that does not exist), that prohibits or would in anyway keep a review of a short sale for a case where the homeowner is not delinquent. It is common place to evaluate any account for a short sale as per request. Delinquent on payments or not. If the account is delinquent that means additional debt is owed and that raises the principal debt. When the lender goes to submit for a short sale (to their boss – the investors), do they want to show a bigger loss or a smaller loss? Well, adding the payments and increasing the debt will only increase this negative write off amount. Does that make sense? Would you do the same with your money? Previous poster would like you to believe the they want to loose more money than they have to. This is incorrect.

Sad part of the industry is that even the counselors in these companies, that you are seeking support from, continue to spread this widely known rumor. Problem is that the right hand does not know what the left hand is doing. Make sure that when you speak to the lenders you are speaking with the right individuals. That is why if you are not speaking to the correct people, if you speak to a different counselor every time and get a different answer every time, then you’re not talking to the right person. That means you are not speaking to the right people.

As a former employee for the bank, I can tell you exactly the way they operate (not as outsiders would like to convince you – or as referred to by others that refer to web pages in their posts. They interpret to these sites to their advantage). I can tell you the mortgage notes are trade amongst all lenders and therefore the types of loans that each lender holds are generally similar to the ones that go through all of the lenders. Countrywide is only one of the largest lenders in the US who handles the largest percentage of Sub-Rrime and a portfolio over the size 1 Trillion Dollars. These loan servicing transfers can be verified by anyone who has ever had their loan “transfered” (sold) between lenders. Now that we have set ground work, as the poster noted above there are a loan servicers and they are protecting their investors. That investor makes the rules. Sometimes lenders themselves are the investor but most times they are not. Sames goes for any lender you are working with. If the lender you are dealing with is the actual investor then they will be “delegated” (internal jargon for allowed to) to make decisions around the loans they hold the risk to. Therefore approvals can be done more rapidly. If the loan servicer is not the investor then you will be facing a longer process. They may have to contact someone at a different location for approval. There is more intricacy to this but we have nor the time nor the space to right it all down.

Now we can verify for assistance at Countrywide according to their “matrix” that there is no need to submit a hardship letter. The hardship is generally documented in the borrowers account notes. Now in some cases, rare cases (not the other way around), the investor will ask for a letter of hardship at Countrywide.

TEST: Call Countrywide.

1. Tel:877-744-7691
2. Press # Until it is asking you if you would like to speak to a rep.
3. Say Yes or Press 1.
   Then you will be prompted to enter your information again. 4. Repeat Step 2 and 3
   Now you should be waiting on hold.
4. Once a representative answers ask them to pull up their “procedures” and have them look up their most recent active “matrix” for workout arrangements. Chances are you’ll get an idiot and you will need to tell them in the upper search bar to put workout and search through procedures till they find the “matrix”. This matrix gives them a breakdown of the items needed to be submitted to be review for the a workout.
5. Ask them what it says under “Short Pay Off” or “Short Sale”.

The items that are requested of you will not include a hardship letter as the previous poster leads you to believe is most common. If so common ask yourself why it is not requested by the bank in this case.

If the information above is wrong in the simplest place (a verifiable one) what more can we believe. This type of incorrect internet hype that is just all wrong. Also once verified please advise this person how you feel about being misinformed.

Now this is not be confused that all lender’s rules are the same. Most are still behind on the times and continue to request the letter of hardship. Some will also ask you to send pictures of the property with a sign in front saying for sale, some will ask for tax returns, some will ask you to pay for an appraisal, some will ask for tax documentation for the property, etc. Countrywide as noted above once past the initial step will at times ask for a Hardship letter but only as per the investors request. Only few and far between request this. The issue is much like the intricacies noted above, there is just too much to write down. Follow up with your lender or have a professional do it.

Most of the lenders follow the rules that have been set in place by lending institutions that have in some cases been around for hundreds of years. These are derived by trial and error. That’s right. They have also been around before FNMA guidelines where ever around as the poster would like you to believe. In fact banking and the lending of money a whole is one of the oldest institutions.

Government loans listed through out this article are also set to the strictest guidelines. The writer does not want you to know that the loans specified in the article only account for a small percentage of mortgages but he wants to lead you to believe that somehow they govern any sort of regulations in the private sector.

We want the best for our clients and for the rest of the on lookers to this post and others like it. Stop with the misinformation as this has not been the first time that this has be brought to you attention.

Regards,