Making Homes Affordable Program

On Feb.18th the Obama Administration announced the Making Home Affordable (MHA) Program, a comprehensive plan to stabilize the US housing market and offer assistance to up to 7 to 9 million homeowners by reducing mortgage payments to affordable levels and preventing avoidable foreclosures.

The MHA program is managed by the US Treasury and us intended to standardize and simplify the short sale process. It includes a set of rules and standard paperwork. MHA guidelines apply to all loans underwritten by the government including loans owned or guaranteed by Fannie Mae and Freddie. The new rules were released on September 30, 2009 and you can ready the details at the MHA update.

What is a Short Sale?

A short sale is:

• The property will sell for less than what the homeowner owes on the mortgage (the homeowner is unable to cover that shortage) therefore the proceeds from the sale will fall short of paying off the mortgage.
• The lender must agree to accept less than what they are owed on the mortgage in order for the home to be sold.

The current process has proven to be ineffective as the listing price and lender approval has not been obtained prior to the listing of the property. Buyers submit their offers, are accepted by the Seller and then wait for bank approval. This process can take between 3 and 6 months with many potential Buyers withdrawing their offers in frustration.

Pre-Listing….
Owner must contact the lender with a request to refinance or modify the existing loan. If the lender is unwilling to do either, the loss mitigator will consider the possibility of a short sale. Only at this point can a short sale be considered and approved, and it will be based solely on whether the lender will net more from a short sale or foreclosure.

1. Listing Agreement…

1. The owner signs listing contracts but the price and listing term is actually set by the loss mitigator.

2. Listing contracts should not be signed without acceptance by both owner and lender.

3. The commission rate is negotiated between seller and listing agent; lender can not negotiate/request a reduction unless the percentage exceeds 6%.

The new guidelines will provide Realtors with the necessary incentives to assist Sellers and Buyers in a successful short sale. This will result in fewer foreclosures and save the taxpayer money.

General Buyer Precautions

• Short sales are sold as-is, therefore there is little chance of getting any concessions for problems uncovered during an inspection.
• Lender’s approval does not guarantee a “clear” title. There may be outstanding taxes or other liens filed against the property that may prevent a closing.
• Foreclosure may still move forward even with an accepted offer.
• You may miss out on another property while waiting for the short sale to be approved.

Short sales, foreclosed and bank owned properties may not be the best values in the local real estate market. Consult with your Realtor to assist you in evaluating the entire market.  If you are a first-time homebuyer seeking the $8000 tax credit, the deadline for closing on a property is November 30, 2009.