Second Mortgage Bail Out with HAMP?

The Obama administration's home owner's modification program, HAMP, has been a huge disaster since its launch in August 2009. The HAMP program has helped very few homeowners modify their mortgages. In an effort to continue to bailout a failing program the Obama administration has extended the HAMP program to second mortgages. I am not too sure about its effectiveness, but the program has been released and Bank of America was the first major lender in the program to send letters to homeowners struggling with their mortgages.

WASHINGTON – April 21, 2010 – The Obama administration’s initiative to help homeowners obtain modifications of second mortgages is getting off the ground.

Just this month, Bank of America became the first major lender in the program to send letters offering modifications to home-equity loan customers struggling with their loans.

Citigroup, JPMorgan Chase and Wells Fargo joined the program in March, when updated guidelines were issued by the government.

Those banks hold about half of the USA’s second liens.

The program, originally introduced in August, is aimed at overcoming an impediment to permanent modifications of first mortgages.

Holders of first mortgages have been reluctant to take losses unless the holder of the second-lien mortgage does, too. More borrowers are staying current on their second mortgages, however, which has made those lenders less inclined to take losses.

“This is a huge concern for consumers,” says Marietta Rodriguez, national director for homeownership and lending at national non-profit NeighborWorks America. “You have two financial institutions trying to get a payment out of you. How do you respond?”

The government’s second-mortgage program, called 2MP, offers incentives to borrowers, mortgage servicers and investors to modify second mortgages. How it works:

• When a borrower’s first loan is modified under the federal program, known as the Home Affordable Modification Program (HAMP), and the servicer of the second loan is also a participant in HAMP, that servicer must offer to modify the borrower’s second lien.

• Servicers can stretch the term of the second loan to 40 years.

• Second-lien lenders must defer the payment of the same proportion of principal that was deferred or forgiven on the first loan.

The second loans also must have originated on or before Jan. 1, 2009, to be eligible for a modification.

Modifying a mortgage with a second lien can be more difficult because of the additional parties involved.

A second lien may be held by another servicer or investor, and getting all parties to agree on interest rate reductions or other steps to ease borrowers’ monthly payments can be time-consuming or difficult. The government program aims to make the process easier.

The number of homeowners who will get assistance is limited.

While the program is expected to reach up to 1.5 million homeowners who are struggling to afford their mortgage payments, there are an estimated 19 million residential junior liens, with an average balance of $57,000 as of January, according to First American CoreLogic.

Up to 50 percent of at-risk mortgages have second liens, according to the Treasury Department.

Even with the incentives the government is offering mortgage lenders to modify second mortgages, they could still prove to be an obstacle as pressure grows to reduce borrowers’ loan principal.

“First-lien holders become more reluctant to do principal reduction because of the second” lien, says Jack Schakett, loss mitigation strategies executive at Bank of America. “Everyone is calling for doing more principal reduction. Second liens will be a problem.”

Copyright © 2010 USA TODAY, a division of Gannett Co. Inc., Stephanie Armour.

New Short Sale Guidelines Encourage Sweeping Changes to Short Sale Process

It has been a very long year fighting everyday to save homeowners from foreclosure. It is a daily challenge to push short sales efficiently and effectively through the short sale process. I have been actively involved in national short sale advocacy groups and we have been demanding changes to a broken short sale process. Two years ago when we started our first short sales, it was a difficult path of paving a road never traveled. As short sales become more prominent we saw changes and guidelines help streamline and encourage lenders to participate in foreclosure prevention programs under the Making Home Affordable Program or Home Affordable Alternatives Program (HAFA). These programs encouraged mortgage modifications and offered some incentives for shorts sales and deed in lieu of foreclosures. However, the program struggled to offer real solutions to an epic problem plaguing our country’s real estate market.

Today’s announcement by the Treasury Department is the next critical and potentially monumental step to making a difference in offering homeowners a real foreclosure alternative. With over 88% of our distressed inventory in Okaloosa, Walton and Bay County being short sales…this is a very significant and much needed change…or as I would call it the necessary lifeline to get through this current real estate crisis. The plan is designed to accelerate the necessary agreements between lenders, real estate agents, buyers and sellers.

Here is a quick break down of the new guidelines…will it change short sales overnight? No. But we have yet to see the bulk of short sales and 2010 will be an epic year for short sales and foreclosures!

The program’s official name is the Home Affordable Foreclosure Alternatives Program (HAFA), and it’s part of an existing initiative, the Home Affordable Modification Program (HAMP). HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which cover over half of all U.S. mortgages; however, Fannie and Freddie will issue their own versions of HAFA in coming weeks.

While HAFA’s goal is simple – increase the number of short sales and “deeds in lieu of foreclosure” by simplifying the process – the rules are complex, and it comes with 43 pages of guidelines and forms. Among other things, HAFA:

Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

• Prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).

• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed.)

• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors.

The program does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements. The program sunsets on Dec. 31, 2012.

To qualify under the new guidelines:

  • The property must be the homeowner’s principal residence.
  • The homeowner is delinquent on the mortgage or default looks likely. Homeowner is insolvent.
  • The loan was made before Jan. 1 this year and is less than $729,750
  • The borrowers’ total monthly mortgage payment exceeds 31 percent of their before-tax income.

Read the HAMP NEWS RELEASE

Read the complete 43 page SHORT SALE GUIDELINES

If you are a troubled homeowner, or have a family member or friend facing foreclosure, please give us a call for a confidential consultation about the possibility of a short sale.  Call Craig Baranowski at 850.259.1788 or email  us @ info@teambaranowski.com. Team Baranowski has a 100% success rate for all of our short sales for 2009!

This site, Craig Baranowski or Keller Williams Realty is not providing legal or tax advice. The information provided is for educational and informational purposes only. It is recommended that sellers considering a short sale should consult an independent legal and tax adviser for more information.