FYI..if your short sale is an FHA loan then tell everyone to sit tight unless the buyers are ready to counter up to the FULL amount of the bank’s counter or the Agreement To Participate letter.

When your short sale offer is less than HUD wants then you must request a variance to be approved – based upon the specific conditions such as different comps.

This process has been getting slower over the past several week and now we know why…we finally got in writing the reason…

***Please note….HUD’s system for variances has been down for 3 weeks.  HUD is processing variance manually….it is taking around 2 wks to get a response.

Tax dollars as work again.

- The Bank Slayer

The Federal Housing Administration is launching its plan to assist up to 1.5 million homeowners who owe more on their properties than their homes are worth.  Our government, in the form of the FHA, is going to forgive underwater mortgages!  Really?

Whether it is fair or right to forgive a debt is a good question for debate but regardless the idea of forgiving part of the loan is a constant theme in attempting to deal with the housing crisis.  But is it really going to happen?

The AP article below provides some insight.  See if you can pick out the key words: permit, select, invited, fallen out, nightmare.  It seems THEY, meaning the investors – READ: Wall Street banks – will pick the borrowers they wish to help.

I recommend not waiting around to see if you “get into” the program since you can’t invite yourself.

- The Bank Slayer

FHA asks lenders to forgive 10% of ‘underwater’ mortgages

By Alan Zibel, Associated Press

WASHINGTON — The Obama administration is trying to jump-start its sputtering attempts to tackle the  foreclosure crisis with an effort to assist homeowners who owe more on their properties than
their homes are worth.

Starting Tuesday, the Federal Housing Administration will permit lenders to give these borrowers refinanced loans backed by the government. The lenders will be required to forgive at least 10% of the original mortgage amount.  Investors who have control over the mortgages as part of their large portfolios will select which borrowers are invited to participate.

The plan was first announced in March. Its rollout represents the latest of numerous efforts by the administration to address the housing bust. So far, the government has only nibbled around the edges
of the crisis, as its programs have run into numerous problems.

The lending industry was ill-prepared for a crush of distressed homeowners, the economy worsened and millions of homeowners had taken on so much debt that their financial woes have been nearly
impossible to resolve.

Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration’s main mortgage-relief program — overseen by the Treasury Department — have already fallen out over
the past year.

Many borrowers say the government program is a bureaucratic nightmare, with banks often losing their documents and then claiming borrowers did not send back the necessary paperwork. Banks say
borrowers often didn’t return the required documents.

The new refinancing program takes a different approach. It allows investors in mortgage-backed securities to evaluate their holdings and select borrowers that will be offered refinanced mortgages
guaranteed by the FHA.

If your mortgage was funded or serviced by Taylor, Bean & Whittaker then it needs to be audited.  TBW was notoriously difficult to deal with in the final stages of its life and closing a short sale or loan mod was near impossible as no one seemed able to pull the trigger.  Well now the man on the firing line is Lee Farkas the former chairman.  While the exact details of the reason for the arrest are still sealed we can be sure he was up to something might suspicious.

Don’t take a bad situation lying down and giving up.  Stand up for your rights and see if TBW monkeyed around with your mortgage.  Most borrowers don’t realize that:  YES – YOU DO HAVE RIGHTS to information held by the mortgage company.  USE THEM!!   Knowledge is power and if they have all the knowledge then you will lack the power to change your situation.  Get the modification or short sale you need today!

- The Bank Slayer

Former Taylor Bean & Whittaker chair Lee Farkas Charged with Securities Fraud

Ocala.com is reporting that Lee Farkas, 57, former chair of Taylor, Bean & Whittaker was arrested in Ocala, Florida on Tuesday and charged with securities fraud.  According to the article, he is being held without bail and the FBI is scheduled to pick him up from the Marion County, Florida jail where he was booked after his arrest.

The raid of TBW’s headquarters as well as the Orlando branch of Colonial Bank occurred in August of 2009, followed shortly by TBW being barred from servicing federal loans or issuing Ginnie Mae securities.  TBW’s demise was almost immediate.  Colonial Bank was shut down by its regulators nine days later, at the time it was the sixth largest bank failure in US history.

There has been a lot of speculation about the reasons for the law enforcement raids and the subsequent actions by FHA, Freddie, Ginnie and the regulators.  A number of questions were raised simply because of SIG TARP’s involvement in the federal investigations and raids.  Colonial Bancgroup, the holding company for Colonial Bank, was not initially approved to receive TARP funds.  In a Time article on November 13, 2008 which noted a 46% decline in Colonial’s stock and $40M third quarter loss, Michael Levine, a portfolio managaer at Oppenheimer Funds was quoted as saying ”If a bank has not received TARP funds, it means one of two things, either you are strong enough that you don’t need the funds, or, two, you are screwed.”

Colonial did apply for TARP funds. It was approved for $550M on the condition that it raise $300M in private capital. Shortly before the deadline to raise that capital, Colonial announced that it had reached an agreement with TBW and that TBW would provide the needed capital in exchange for 75% of Colonial’s common equity.  Unfortunately, that deal fell apart in July, shortly before the August law enforcement raids of both companies.

The documents charging Lee Farkas have not been unsealed and we have not been able to independently confirm the arrest.  The fact that he was arrested indicates that he was likely indicted, not charged by information (United States Attorneys generally charge a defendant by way of “Information” rather than “Indictment” when a plea agreement has been reached prior to the filing of charges.)  Either way, it is likely that the charging documents will clear up some of the mystery that surrounded the implosion of the not-so-little non-bank mortgage lender that believed it could.

Sure, with enough firepower you can not only get a principal reduction but shut down the bank from even attempting to collect from you at all.

As far as regarding how you “get your principal reduction” in HAMP read on…

Remember folks, these changes to HAMP and HAFA and every other program rolled out require not only sign off at each of the various “banks” but also they are guidelines meant to encourage behavior.

You should drink eight glasses of water each day as well.  Do you follow that guideline?

Thus far we have seen no significant recourse for homeowners if the mortgage companies don’t obey these guidelines.   But let’s at least consider what they are proposing.

The new HAMP guidelines:

• “encourage principal write-downs”
• “are to be implemented in coming months”
• “requirement that servicers consider ‘principal relief’”
• “Borrowers faced with unemployment… will be able to have payments temporarily reduced to an affordable level for three to six months”
• “servicers must pursue early intervention”

Especially power is a REQUIREMENT to consider.  Tack on the MUST pursue early intervention.  i.e., MUST mail homeowners letting them know they need to take action or they will face foreclosure.    I’m sure we’re all encouraged about the “affordable” payments when you have no income due to loss of job.  I vote for $1 mortgage payments.

If you want to take down the bank, forcing them to offer you a significant loan modification or write-down in a short sale be prepared to fight and fight hard.  It is a winnable battle but suit up.

-          The Bank Slayer

Treasury Prepares Principal Reduction Initiative under HAMP

Posted By DIANA GOLOBAY On March 26, 2010 @ 8:00 am | 1 Comment

(Update 1: adds Treasury announcement.)

The US Treasury Department, as it continues to revamp the Home Affordable Modification Program (HAMP), announced today an initiative to encourage principal write-downs.

The principal reduction plan is one of the changes to HAMP, to be implemented in coming months.

The changes will encourage servicers to write-down a portion of mortgage debt as part of a HAMP modification, allow more borrowers to qualify for modification and help borrowers move into more affordable housing when modification is not possible, according to a fact sheet on the improvements provided to HousingWire.

Most notable among the new initiatives is the requirement that servicers consider “principal relief” including write-downs.

“This alternative modification approach will include incentive payments for each dollar of principal write-down by servicers and investors,” Treasury said in a statement today. “The principal reduction and the incentives will be earned by the borrower and lender based on a pay-for-success structure.”

The principal reduction initiative is geared toward borrowers with excessive negative equity.

The write-downs will apply only to borrowers with 115% or higher loan-to-value (LTV) ratios. Servicers will initially forbear some or all of the balance exceeding 100% of the home’s value, down to a 31% debt-to-income ratio. Then, the servicer will forgive the forborne amount in three equal installments over three years, contingent on the borrower’s ability to remain current on payments.

Borrowers faced with unemployment – therefore, a lack of income to calculate the debt-to-income ratio targeted under HAMP – will be able to have payments temporarily reduced to an affordable level for three to six months. Treasury is also clarifying borrower outreach and communication requirements, increasing incentives available to servicers and extending those incentives to borrowers with mortgages insured by the Federal Housing Administration (FHA).

The Treasury also announced adjustments to FHA programs that will provide more refinancing options to borrowers with negative equity due to large local declines in home prices. The new FHA loan should re-equify the borrower by reducing the amount owed on the original loan by at least 10% and resulting in a principal amount less than the home value. After refinance, the combined first mortgage and any secondary liens cannot surpass 115% of the current value of the home.

“This refinancing will help homeowners by setting monthly payments at affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth,” Treasury said. “Keeping more responsible families in their homes should support the continued recovery of the housing market.”

For borrowers that cannot complete a modification, there’s the Home Affordable Foreclosure Alternatives (HAFA) program, which ends in a short sale. Treasury said today it will double relocation assistance payments to borrowers that elect HAFA, as well as increase incentives for servicers and lenders in order to increase participation in this program.

Laurie Maggiano, Director of Policy in the Office of Homeownership Preservation at the Treasury, indicated yesterday during a Webinar ^[1] hosted by HousingWire that a significant announcement around HAFA was in the works.

The Treasury yesterday announced sweeping improvements ^[2] to the way servicers actively solicit borrowers for participation in HAMP, even from the protection of bankruptcy. Beginning June 1st, servicers must pursue early intervention, pre-screening every borrower that misses two or more payments to determine eligibility for HAMP and soliciting those qualifying borrowers for HAMP participation.

The news of a HAMP principal reduction program comes after Bank of America (BAC ^[3]: 17.90 +0.90%) introduced this week ^[4] an earned principal forgiveness program in which a forborne amount of principal will gradually be forgiven over a five-year period.

Analyst commentary on the program suggests it bears adverse implications ^[5] for the payout of certain non-agency mortgage-backed securities (MBS). In particular, the program presents a “clear negative” for junior mezzanine and subordinate debt holders, as well as moral hazard risk as borrowers intentionally default to receive principal forgiveness.

Two questions borrowers frequently ask us,

1. “How did my neighbor get into HAMP (and/or get a loan modification) but I can’t?
2. “Do I have to be delinquent to get a workout plan?”

The best answers typically are:

1. The secret Black Box recipe may not mix well with your situation (read more here on this) because your loan may be very different from your neighbor. ex. FHA vs Conventional, Mortgage Insurance vs none, Freddie vs Fannie, 80/20 vs 90/10, etc.
2. You don’t have to be delinquent but the mortgage companies encourage it. (we have this in writing and in audio)

Add to it that most Mortgage Servicers (the ones collecting your payment):

• give borrowers poor advice based upon the banks own lack of understanding as to what is the best components of HAMP and HAFA in which to place your file;
• are motivated to foreclose as they have bought your loan at a deep discount and now want to flip the home for a profit;
• know that they can keep you in an endless loop of faxing and re-faxing while enticing you to send them some more of you hard earned dollars.

Finally, even the Treasury department is coming to the conclusion that the magic of HAMP is failing to perform as desired.

- The Bank Slayer

From HousingWire

Seth Wheeler, senior adviser to the US Treasury Department, said that one of the main goals of the Obama Administration is to fix the mortgage market in the United States, although federally subsidized modifications may not be appropriate for many borrowers.

Speaking at the American Securitization Forum (ASF) 2010 conference in Washington DC, Wheeler said the focus of the Administration is shifting somewhat away from modifications, as getting borrowers into the Home Affordable Modification Program (HAMP) is not always the best solution.

“Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve [housing] stability,” he said. “Modifications are only for a certain subset of distressed homeowners.”

The Administration’s foreclosure alternative program – the Home Affordable Foreclosure Alternatives program,  or HAFA – will provide incentives to servicers and borrowers that pursue short sales rather than foreclosure. As HousingWire magazine reports ^[1], critics of HAFA say it will dull short sale experts’ competitive edge while other sources warn homeowners will still see short sales as the loss of homeownership.

“They can’t keep their home, but they can avoid foreclosure,” explained Colleen Hernandez, CEO of the Homeownership Preservation Foundation (HPF) – a nonprofit that partners with local governments, borrowers and lenders to facilitate foreclosure alternatives and promote homeownership.

“We are seeing middle class unemployed,” Hernandez said, adding the emerging class of struggling homeowners are unused to financial hardship. “They are slow to apply for benefits, slow to pick up a job that pays less, slow to take up the new world order.” HPF’s services help these borrowers get their arms around total finances as this class tends to be highly indebted with not only credit cards, but also outstanding student loans and car payments. “We help them  prioritize” the wind-down of their obligations, Hernandez added.

“HAMP can not be seen as the only solution,” said Doug Potolsky, a senior vice president at Chase Home Finance. “Chase has aggressive programs that deal with loans that fail HAMP.” Clearly, he said, other solutions are necessary as, in his department, HAMP is not particularly successful. Nearly one-third of Chase HAMP trial modifications result in no repayment, and only 20% ever reach permanent modification status, Potolsky said. “HAMP is not perfect, but improving. I think as a servicer we have to work on building our own [modification] program.” In terms of trying to follow the administrations directive to fix mortgage markets, Potolsky added that option ARM mortgages are particularly challenging to modify.

HAMP servicers completed a total 66,465 permanent modifications through December, according to the latest Treasury report ^[2].

Other panelists at ASF this week feel a heavy reliance on HAMP could even result in a second housing dip. The warning comes after a special inspector on the Treasury’s asset-relief efforts recently warned of a government-induced second housing bubble ^[3]. Another challenge facing the administration, according to ASF director Tom Deutsch, is the 30% of US borrowers that are underwater and facing strategic defaults ^[4]. And this is perhaps the biggest challenge facing the market.

Laurie Goodman, a managing director of Amherst Securities – and a vocal critic of HAMP for its failure to address negative equity ^[5] – responded to Deutsch: “If you have negative equity, you are very, very likely to default.” Goodman added: “Negative equity is the single most driver of defaults.”

Negative equity may be just one of the predictors of borrower mentality leading to strategic default ^[6], an issue HousingWire studies in-depth in the February magazine issue ^[7].

Nancy Mueller Handal, managing director of structured fiance at MetLife, also said at ASF that solving the issue of shadow inventory – homes at danger of default, which Goodman’s team recently estimated to range around 7m units ^[8] – will require a viable non-agency refinancing program in order to prevent the home again reaching default status in two to five years. Under this program, the private market for the mortgage-backed securities (MBS) could re-open, providing need liquidity into the market.

Written by Jacob Gaffney.  Diana Golobay contributed to this report.

The US Department of Housing and Urban Development (HUD) removed the 1% origination fee cap on loans insured by the Federal Housing Agency (FHA), according a mortgagee letter sent out this week.

HUD made the change to remain consistent with the Real Estate Settlement Procedures Act (RESPA), which will require mortgage lenders to disclose to borrowers a single origination fee on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement.   The regulations go into effect Jan. 1, 2010

Under RESPA, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker. HUD recognized the bundled charge would exceed the 1% cap, according to a statement from the law firm K&L Gates.

To match the changes of FHA regulations, HUD will no longer limit the amount of the origination fee charged to FHA borrowers.

Great the new changes RESPA has rolled out allow the lenders/brokers to jack up the Origination Fee.  Now brokers can whack you a few points for origination AND pick up some Yield Spread kickbacks.  This makes me sick.

The FHA will expect lenders to charge “fair and reasonable” fees and will monitor them to ensure FHA borrowers are not overcharged, and FHA commissioner David Stevens intends to issue additional guidance on fee limitations, according to the letter.

Yeh right, fair and reasonable.  I have looked at well over 1,000 HUD settlements statements where brokers were supposed to be “fair and reasonable” but in fact they were limited by law to the amount they could charge for some types of loans.  You know what we found…they don’t care and many look for any angle to skirt the law.  Wow, no need for that anymore, now we don’t have a limit.

Thanks to Jon Prior @ HousingWire for this tip.

- The Bank Slayer

One of the fears that homeowner have is whether they will be able to secure a new loan to purchase a home in the future after short selling the current one.  The answer is yes.  In fact, the Department of Housing and Urban Development (HUD) released a letter to lenders regarding borrower eligibility for a new Federal Housing Administration (FHA) mortgage after pursuing a short sale.

According to the letter (available to download here) and effective immediately, while borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement specifically “to take advantage of declining market conditions” or “to purchase another property at a reduced price”; they are cleared for a new FHA-insured mortgage if they were current on their previous mortgage and other debts at the time of the short sale and if the proceeds from the short sale served as payment in full.  These points are KEY!!!

Realtors, take note…if your seller needs to pursue a short sale and is still current, the sale will need to be handled differently than if they are in default.   Example, If a borrower executes a short sale while in default on their mortgage they will not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale.   But some lenders will make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner.  But this needs to be documented and handled diligently during the transaction.

It also means that anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage for three years.  Thanks to Jon Prior at HousingWire for this timely info.

-          The Bank Slayer

Wow.  You can’t make this stuff up!

About two months ago we helped a family, whose house was in Porter, Texas, short sale their home.  A key component of a successful short sale is protecting the homeowner and their REALTOR from the mortgage company because while these companies can be sneaky and unethical they are also disorganized.

In this case, Bank of America was the servicer.  After a lot of wrestling and a well aimed lawsuit, B of A agreed to accept the short sale with complete debt forgiveness.   File closed and funds wired.  Done with a testimonial to prove it.

Fast forward about two months…they contact the now “former” listing agent, sending them a short sale package for submission to the FHA.  What a joke!  Just another example of how they don’t know which way is up.  Morons.

- The Bank Slayer

No one likes their product or service called crap but that is exactly what Robert Toll, CEO of Toll Brothers called the FHA program at a New York home builders conference.

He also went as far as calling it a “definite train wreck,” noting that a “flag will go up in the next couple of months” for bail out money.  As we pointed out last week they don’t have anywhere close to the reserves necessary to cover the current number of defaults.   One in five of FHA loans is in default according to reports.

Everyone with any sense realizes that FHA loans have taken the place of subprime.  What is even more aggravating is that mortgage brokers can typically receive higher commissions when pushing FHA versus many of the conventional products.   If you are thinking about using an FHA loan make sure your loan officer has compared it to a conventional loan.  Look hard at the numbers.   You may be paying a lot more than you think.

- The Bank Slayer

Go figure.  FHA borrowers are defaulting at a 30% faster rate than non-FHA borrowers.  Shocking!

Since the FHA only requires a 3.5% down payment and the seller can chip in 3-6%, home buyers can move into a home for…drum roll please… all together now… Zip, Nada, Zero!   Not much skin in the game huh?

The FHA is facing mounting losses but officials claim they won’t need a cash infusion unless the economy slips back into a recession.  The FHA’s reserves for defaults has dropped to $3.6 billion.  But it’s OK because at least they know they have a problem; Housing Secretary Shaun Donovan says, “It is critical that going forward, we build that cushion back up.”

Ok, riddle me this and see if our officials are smarter than a 5^th grader.  Currently, there are $685+ billion in outstanding loans and 17% of these loans are in default.  How much money does the FHA need to have in the drawer to cover their losses?  Survey says…$89 billion, ding ding ding you win!  Wait didn’t they say they only have $3.6 billion.  Houston, we have a problem.

What do you think we should do?!?

- The Bank Slayer