Understanding fha and va distressed property options aug2011
1. By Mark Taylor CDPE CMPS CSSPE
C C
REDS
Understanding FHA & VA
Distressed Property Options
the Next Wave of
Distressed Properties….
Arizona Academy of Real Estate #S05-0009
10207 N. Scottsdale Road
Scottsdale, Arizona 85253
(623) 505-5380
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2. The Plan of Attack for Today
What our market is made up of loan wise
Why this is necessary for you to learn these processes
How the FHA PFS Program works
Benefits of the FHA PFS Program
What documents you need to use you’ve never used before
How to price the home - yes that means no making up values :-)
What to do if you meet a seller with a VA loan
What VA paperwork you need and issues to be aware of
And how FHA wants to help fix our upside down market
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3. So How Are We Doing So Far?
QUARTER 1 – 2011 vs. 2010 ALL MORTGAGES – 2010
All Mortgages: 4.63% in Foreclosure 9.38% in Total Distressed Properties: 6,700,000*
Default (30+ days late) 14.01% Total +1% Total Predicted Sales: 6,030,000**
Prime Mortgages: 3.41% in Foreclosure 6.89% in *Distressed Property Institute estimate
Default (30+ days late) 10.3% Total +3% **NAR, Walt Molony
http://www.realtor.org/press_room/news_releases/2010/02/met
ro_state
Subprime Mortgages: 15.39% in Foreclosure
25.76% in Default (30+ days late) 41.15% Total -2%
Unemployment Rate
U.S. Bureau of Labor Statistics, the adjusted
FHA Mortgages: 3.93% in Foreclosure 12.09% in unemployment rate for April 2010 was 9.9%.
The highest rate ever recorded by the Bureau was 10.8%
Default (30+ days late) 16.02% Total +10% in Nov/Dec 1982.
VA Mortgages: 2.63% in Foreclosure 7.06% in Underemployment Rate
Default (30+ days late) 9.69% Total 0% According to the U.S. Bureau of Labor Statistics, the
seasonally adjusted underemployment rate for April
Mortgage Bankers Association 2010 was 16.7%.
National Delinquency Survey
Based on 44,600,000 mortgages - Non Seasonally Adjusted
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5. The Next Wave of Mortgages
FHA VA
And what they become....
HUD Homes
Did you know you can’t just slap these types of
sellers on the MLS and try and short sale these
homes without going through a special process –
which we will learn today
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6. FHA
YTD
FHA has been 91% of ALL 91%
SALES
in the $358,000 or Under Price
Point
It allows for 3.5% down
0 months of reserves
1.15% MMI just went from .90% 9%
1% UFMIP now it was 2.25%
43% DTI exceptions to 50 available case by case
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7. So How Does FHA PFS Work?
If you have a Seller in an FHA loan the
Servicer must participate in the Pre-
Foreclosure Program (PFS)
This program has been around since
1994 and received a revision in Dec 24
2008 per mortgagee letter 2008-43
The intent of this program is to
help homeowners avoid
foreclosure
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8. So How Does FHA PFS Work?
KEY FEATURES OF THE PFS PROGRAM
Establishing Market Value
Mortgagees are reminded to ensure that
properties in the PFS program are sold at
near fair market value as established by
an independent appraisal, prepared by
an appraiser on the FHA Appraisal
roster.
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9. The FHA Appraisal
• Servicer must obtain the appraisal at their cost and will
be reimbursed through HUD’s claim filing process
• Appraisals obtained by the Buyer, Seller, Real Estate
Agent or other interested parties may not be used to
establish FMV of the property
• Servicer will provide a copy of the appraisal to the
Homeowner, Agent or HUD, upon request
• The appraised value becomes the listing price
• To ensure the most current FMV is used, Mortgagee may
obtain a new FHA appraisal, even if the property was
appraised by and FHA Roster Appraiser within the
preceding 6 months.
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10. KEY FEATURES OF THE PFS PROGRAM
Minimum List
Price Requirements
Properties offered for sale under
the PFS program are to be listed
for sale no less than the as-is
appraised price.
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11. KEY FEATURES OF THE PFS PROGRAM
Tiered Net Proceeds
Requirement 12
PFS has guidelines for a varying
minimum net sales proceeds 9 3
based on length of time on the
market. More on this later…
6
11
12. KEY FEATURES OF THE PFS PROGRAM
Non-Owner
Occupant Exception
Mortgagees are allowed to proceed
with the PFS if the non occupant
mortgagor proves house was not
purchased with the intent to rent
and has been rented for at least 18
months.
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13. KEY FEATURES OF THE PFS PROGRAM
Marketing
Documentation
Prior to accepting a discounted
offer the selling agent must
provide proof of why this offer
is valid and the documentation
need be kept for the claim file
by HUD
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14. KEY FEATURES OF THE PFS PROGRAM
Removal of
Repair Limitations
With prior approval damage caused
by flood, fire, earthquake, boiler
explosion or mortgagee neglect can
be repaired as long as the costs of the
repairs is covered by a reduction in
the debt paid off by the claim
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15. KEY FEATURES OF THE PFS PROGRAM
Subordinate Liens
$2500 will be paid to clear
subordinate liens in order to
deliver clear and marketable
title.
Exception: If subordinate lien
is an FHA Partial Claim, the
amount must be included in the
total delinquency
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16. KEY FEATURES OF THE PFS PROGRAM
Seller Paid
Closing Costs
HUD will allow under the
PFS program to pay up to
1% of the buyers mortgage
amount in closing costs as
long as that Buyer is using
FHA financing to buy the
home.
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17. FHA PFS Basics:
Program is for people with a hardship that have to sell their home and can’t
due to loan being greater than the value
To participate the seller must be willing to market the home with a Realtor
for at least 90 days
During the 90 days the Servicer will delay foreclosure
If the property is sold in the 90 day period the seller will receive a $1000
incentive. $750 after that.
If the property doesn’t sell then the Seller is encouraged to participate in the
DIL process.
No deficiency judgment will be sought if the Seller complies with the
program in good faith
HECM mortgages “reverse mortgages” are not eligible for the PFS program
In order to participate in the PFS the Seller must be delinquent at least 30
days! (this excludes them from entering back into the market for 2 years on a conventional loan
and 3 years using FHA again ((from time of claim paid))
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18. FHA PFS Basics:
Qualifying:
Are in default due to adverse and unforeseeable circumstances
Have negative equity
Are owner occupants ( non-owner exceptions are granted)
Have only one FHA loan*
Are not a corporation or partnership
On the 32-60 day of default consumers will be sent HUD PA-426 “How to
avoid foreclosure” in encourage initiation into the PFS program
HUD-90035 Form “information disclosure” will be mailed to seller along with
disclosures.
Financial information will be furnished to the Servicer and upon approval of
financial distress HUD-90045 Form “approval to participate” will be sent
*Mortgagees are authorized to make reasonable exceptions for mortgagors who have
acquired and FHA insured property through inheritance or co-signed to enhance
the credit of another mortgagor.
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19. FHA PFS Basics:
Financial Analysis:
All documentation and statements either supplied electronically or on the phone
will be verified.
Sellers with additional assets will be required to exhaust those assets wherever
possible to make the mortgagee as whole as possible
Calculations will be entered into to examine borrowers fixed monthly expenses
including food, bills, utilities outstanding debts, etc)
Calculations to verify monthly net income including anticipation of fluctuations
in income
Calculating the surplus income from net that remains to offset the mortgage
During this process if the seller is deemed not eligible for the PFS or another
mitigation solution then they must be given a detailed denial and 7 days to refute
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21. FHA PFS Basics:
Property Value:
Must be listed at the as-is appraised value completed by HUD per the
HUD handbook 4150-2 (195 page manual)
Must be valid for 6 months
Distressed sales cannot be used unless that is all the comps available
Property Condition:
Any and all repairs must be approved prior to approval of FMV.
Repairs require a HUD – 90041 Request for variance to be completed and
approved
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23. FHA PFS Basics:
Repairs
Some Tricks to Know About Repairs
If property is being sold as repaired and
funds are to be held in an escrow
holdback, the costs are not part of the
settlement costs and are not calculated in
the NSP calculations
If the Seller can get the repairs completed
under their insurance they must file a claim
to that end and adjust claim to the PFS
program
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24. FHA PFS Basics::
Title:
A title search must be performed prior to issuance of the approval to
participate.
If the issues conveyed on the Prelim can be resolved they must be resolved
If discharging of a junior lien is necessary then the max contribution will be
$2500 . This is $1500 from the Mortgagor/Mortgagee and $1000 from the
Mortgagee that they would have given to the Mortgagor as the incentive for
helping sell the home. If a promissory note is requested the Seller must do all
they can to comply with those terms. Mortgagors who have the ability to do so
must satisfy or obtain release of liens.
Upon completion of all of the aforementioned steps a form 90045 approval to
participate will be issued.
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26. FHA PFS Basics:
Use of a Real Estate Broker
(page 11 of 18 of ml 2008-43)
Must be engaged with Broker within 7 days of the approval to participate HUD-
90045
No conflict of interest allowed for Listing Agent:
No commission to be paid to Agent on their own property if doing a PFS
If FSBO Seller had already entered into a contract there is no need for a Realtor
Listing agreement must include the following language: "Seller may cancel this
Agreement prior to the ending date of the listing period without advance notice
to the Broker, and without payment of a commission or any other consideration
if the property is conveyed to the mortgage insurer or the mortgage holder. The
sale completion is subject to approval by the mortgagee.”
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27. FHA PFS Basics :
Use of a Real Estate Broker, cont.
(page 11 of 18 of ml 2008-43)
Seller must maintain the property
Arms length transaction at all times
Contract will be approved within 5 business days of receiving it and a
HUD-90051 “Sales Contract review” form will be sent to the Seller after
ensuring no hidden terms or “special” agreements have been entered into
Sale must occur within 4 months of approval and an extension of 2 months
may be given if loan is a tier 1 http://www.hud.gov/offices/hsg/sfh/nsc/trsovrvw.cfm) or
there is a signed contract that cannot perform within the 4 months
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29. Net Sale Proceeds and Marketing :
NET SALE PROCEEDS is defined as: First 30 days offers will be
approved at Minimum Net
Proceeds of 88% of FMV
Net Sale Proceeds 30-60 days offers will be
approved at MNP of 86% of
FMV
(FMV minus 61 days offers will be approved
The Sales Price marketing time) at MNP of 84% of FMV
– The Closing/Settlement Costs Max period is 6 months for
marketing . The Goal is to sell
homes in the first 90days ~ after
Net Sale Proceeds that DIL is offered to seller.
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30. More on Net Sale Proceeds:
Costs Affecting NSP
$ $ $
Commissions not to exceed 6%
Taxes are prorated to date of closing $ $ $
Sellers costs for title transfer taxes
$1000 incentive for selling home within 90
$
days
Up to $2500 for releasing a junior lien after 90
days max is $2250
Up to 1% of buyers closing cost contributions
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31. Net Sale Proceeds (Exclusions) :
Items NOT Allowed*:
_____________________________
Repair Reimbursements
____________________
Home Warranty
__________________________________
Discount Points/Loan Fees
__________________________
Lenders Title Costs
* But the Seller may use his $1000 to offset these
items.
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32. Even More Basics:
Early Termination
Property Inspections
MORTGAGOR
may Terminate the PFS To prevent waste Mortgagee will
AT ANY TIME conduct an inspection on the 45th
day after default if there has been
no contact with the Seller.
MORTGAGEE
can Terminate the program for:
Un-resolvable title problems
Seller is not acting in good faith
Significant change in the property
Documentation shows the Seller
doesn’t qualify for the PFS
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33. Re-emphasizing Some Good
News!
Sellers will be eligible for a $750 incentive for
complying with the PFS program however if
they help the house to sell in LESS THAN 90
DAYS they will receive a total of $1000.
Prior to closing a Closing Worksheet form 90052 will be
provided to the closing agent showing the above
incentive and breaking down net proceeds, all allowable
costs come from net proceeds, buyer costs are covered
and that all the final numbers match the allowable
thresholds. After the successful closing occurs the credit
will be reported as a short sale and mortgagees will
receive and be responsible for reporting a 1099A
(Acquisition or Abandonment of a secured property).
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34.
35.
36.
37.
38. What page of Google are YOU on?
We all know what it means to be on the first page of Google. If your
interested it learning how you can be on the first page without spending
a lot of your valuable time or money. We can have your name on the
first page of Google within minutes....and we would love the opportunity
to prove it to you!
71. VA Compromise Sales Program
YTD VA Sales have been 6%
$417000 Max Loan Amount
VA Funding Fee of 2.15% if never used VA
benefits, 3.3% if used subsequently, no
Funding Fee if disabled and 3.4% if currently
in reserves.
No Monthly MI
100% Financing
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72. Program Run Out of Roanoke
Regional Center
Consumers will be advised of the following options:
Refunding Deed-in-Lieu Re-Amortization
Private
Pay the Delinquency Sale
Payment
Offered a Forbearance or
Assistance
Repayment Schedule
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73. Pay the Delinquency
Unlike MOST other Mortgage Holders....
VA Servicers must accept
payment to bring the note
current along with any legal
costs. The borrower could
be able to do so under the GI
Bill.
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74. Offered a Forbearance or Repayment
Schedule
Forbearance Agreements
can be issued using a VA-5655 Form A Workout Plan will
be offered where each
month the amount of
arrears is added to the
current payment until
Paid In Full.
Suspension of
payments may be given
under rare situations.
VA Form 5655 VA Form 5655
Page 1 Page 2 74
75. Payment Assistance
Many State and Local
Governments have a
program that can pay all or
some of the mortgage for a
specific period of time.
VA does not have a
program but does have
the information that will
help a Vet if needed.
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76. Re-Amortization
Re-Amortize your Loan either by:
Restarting the loan back to a 30 year
Adding additional time to the loan and
the delinquency is added to the balance
This could increase the loan and the
monthly payment.
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77. Private Sale
If the Seller cannot reinstate the loan or
work anything out it, it can then be sold
and any equity kept
The loan may also be assumed, however
permission must be granted by VA and
obtain a Release of Liability
Should the home be upside down VA
may pay a Compromise Claim to the
Mortgagee as long as the Compromise
Sales program is approved and entered
into with the Mortgagee.
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78. Deed-In-Lieu
If a private sale or a cure of the default
cannot be achieved then a Deed-In-Lieu
may be entered into.
VA will have to pay the claim of the
difference owed to the
Servicer/Investor.
The Seller will be released from future
liability but will be made responsible for all or
part of the loss incurred – the credit will
reflect as a Voluntary Foreclosure
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79. Refunding
VA has the right to buy the loan from the
Lien Holder and take over the servicing!
This is called “REFUNDING”
This is an option looked at on
every potential claim.
Should you have the ability to make the
payment in the future but cannot get caught up
or maintain the current forbearance, the Seller
may qualify for a refunding.
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80. How to Qualify for a Compromise
Agreement
Property must be sold at fair market value
Closing costs must be reasonable and customary
Must be less costly to Servicer/Investor than a foreclosure
Financial Hardship must be demonstrated by the Seller
Loans funded prior to Dec 31st 1989, the seller must sign a
promissory note
No second liens! Where there are 2nd Liens, Seller must pay
them or accept a promissory note
Must obtain a sales contract prior to being considered for the
program
Realtors must protect the Seller by ensuring the contract states:
“Sales contract is contingent and/or subject to the approval of a
VA Compromise Sale”
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81. Ready For Some Rules?
Seller should contact their Servicer or their local VA asking
them to participate in the VA Compromise Sale Program
(VACSP)
Seller to provide a written financial statement provided by their
Servicer
Seller must complete a letter of request to participate in VACSP
Compromise Agreement Sale Application needs be completed
by the Seller, obtained from the Servicer
Seller needs be prepared to sign a promissory note to the VA for
the loss incurred if they had a home loan prior to 12/31/1989
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82. More Rules for the Realtor and Seller
Sales contract submitted must include all signatures and state: “offer
contingent upon approval of a VA compromise sale”
GFE Needs be provided of all costs of the loan
Letter to Servicer and VA asking to be considered for VACSP
All supporting documentation of the hardship
Compromise agreement sale Application submitted
A current VA appraisal must be acquired by Seller’s Servicer and ordered by
them – exception is if buyer is a VA applicant that appraisal may be used
instead ( note VA has a 10 day turn around window)
A compromise assumption agreement from the Servicer to the VA agreeing
to modify their claim
Review of the buyer to ensure that they do indeed qualify before finalizing
the process
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83. So Now You Have an
Approval, Now What?
Once the approval has been signed off on by the Legal
department of the VA the closing agent will verify the
amounts.
At the closing table, net proceeds are paid to the
Servicer who then files a claim to VA for the shortfall
VA will not pay more than was approved and more
than the VA coverage amount.
Seller also will be advised that their entitlement will
not be restored until the claim has been paid in full.
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84. Are you ready for what’s Coming??
FHA Refinance of
Borrowers in Negative
Equity Positions
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85. Who is the target market?
FHA’s new refinance opportunity is targeted to
help people who owe more on their mortgage
than their home is worth because their local
markets have seen large declines in home
values.
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86. What are the borrower eligibility
requirements?
• Existing loan to be refinanced is not FHA
insured;
• Must owe more on their mortgage than the
value of the property;
• Must be current on the existing mortgage to
be refinanced;
• Must have a “FICO based” decision credit score
greater than or equal to 500;
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87. What are the borrower eligibility
requirements?
• Existing first lien holder must write off at least
10% of the unpaid principal balance (UPB);
• Loan-to-value (LTV) ratio of no more than
97.75%;
• Combined loan-to-value (CLTV) ratio must be
115% or less; and
• For manually underwritten loans, the qualifying
ratios can be no greater than 31/50.
Standard FHA underwriting requirements apply
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88. Does the borrower need to know any
additional information?
• Borrowers must be made aware that the short
refinancing under this program may be
reflected as a negative feature on their credit
score.
• Borrowers must be advised to consult with
their tax advisors regarding the cancellation of
debt and possible tax consequences.
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89. Example
Scenario 1
Original Value 350,000
UPB First Lien 280,000
UPB Second Lien 70,000
Current Value 210,000
Max CLTV (115%) 241,500
New First Lien (97.75%) 205,275
New UPB Second Lien 36,225
Reduction by First Lien 74,725
Reduction by Second Lien 33,775
Net Forgiveness 108,500
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90. Example
Scenario 2
Original Value 100,000
UPB First Lien 60,000
UPB Second Lien 60,000
Current Value 60,000
Max CLTV (115%) 69,000
New First Lien (97.75%) 58,650
New UPB Second Lien 10,350
Reduction by First Lien 1,350
Reduction by Second Lien 49,650
Net Forgiveness 51,000
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91. What are benefits of these
refinances?
• Provides Servicers and borrowers with an
affordable stable loan product;
• Helps to stabilize communities that have seen
a decline in housing prices; and
• Costs will be shared between the private
sector (1st and 2nd lien investors) and the
federal government (HUD and Treasury).
– Private sector will be extinguishing debt.
– Treasury will be paying incentives to second
lien servicers and investors.
– HUD and Treasury would pay the claim.
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92. When will this start?
The program has been finished and replaces the
H2H (H4H) program of last year that failed. All
principals and incentives and procedures have
been approved in concept
The mortgagee letter has to be signed and released
and then implemented and promoted.
Estimated launch date ... anytime soon ... Buehler?
92
Editor's Notes
Mortgagee: Person who accepts a mortgage-Creditor
ML 2008-43 is the HUD book on PFS
The Link is to HUD’s website regarding the tier ranking system. HUD implemented the Tier Ranking System (TRS) in 2000 as a pilot to measure servicer's utilization of HUD's loss mitigation program.