THE FHA “BACK TO WORK PROGRAM” IS EFFECTIVE NOW!!!
The FHA has waived its three (3) year post foreclosure waiting period (well in some very specific cases and certain instances). This is now effective for any new case numbers for new loan applications that are assigned on, or after August 15th of this year.
WHO IS IMPACTED (OR WHO IS BENEFITTED) BY THIS NEW RULE?
Well probably just about everybody that our office has been working with over the last five (5) years.
*****Recent history of bankruptcy? Yes!!!
*****Recent history of foreclosure? Yes!!!
*****Recent history of a judgment? Yes!!!
*****Recent history of a short sale? Yes!!!
*****Recent history of loan mod? Yes!!!!
*****Recent history of Deed-in-Lieu? Yes!!!!
A LITTLE HISTORY OF “FHA” AND WHO RUNS THE SHOW
The Federal Housing Administration was created a long long time ago back in 1934. It was independent in a manner up until 1965 when it became a part of the U.S. Department of Housing & Urban Development. You probably know them as “HUD”.
If you have attended any of my classes during the Recession you know that FHA’s primary role is to act as an insurer of mortgage loans that are issued by FHA-approved lenders. In some searching today I found that FHA has insured more than 34 million loans in its history and that makes FHA the largest insurer of residential mortgage loans in the whole world!! Step aside AIG!!!
So FHA sets the guidelines and standards upon which they are willing to insure a mortgage loan and those guidelines are not hidden in any fashion, but published for all to see. There are a lot of rules: minimum credit score; down payment of 3.5% on a purchase; verifiable income and sources of income.
NEW GUIDELINES FOR PARTIES WHO “HAVE EXPERIENCED PERIODS OF FINANCIAL DIFFICULTY DUE TO EXTENUATING CIRCUMSTANCES”
The official name of the program is: “Back to Work-Extenuating Circumstances Program”.
Prior to the introduction of this program, typically FHA had a THREE YEAR waiting period after some of the enumerated events above like foreclosures and the like. That changed earlier this year. It is in full force right now. The new time to wait will be only a YEAR if you qualify.
Now you no longer have to wait TWO YEARS after a Chapter 7 or Chapter 13 bankruptcy. This program allows parties to make application for a new residential FHA insured loan after a foreclosure-like event far sooner than before. There is just a ONE YEAR waiting period.
HOW DOES ONE QUALIFY FOR A NEW FHA LOAN UNDER THIS PROGRAM?
To be eligible for a new FHA mortgage loan you must qualify for a waiver of the longer period that FHA has traditionally held. You must have experienced an “ECONOMIC EVENT:”
******PRE-FORECLOSURE SHORT SALE
******SHORT SALE
******DEED-in LIEU
******FORECLOSURE
******CHAPTER 7 BANKRUPTCY
******CHAPTER 13 BANKRUPTCY
******LOAN MODIFICATION
******FOREBEARANCE PROGRAM
After you have shown that, you must show that you have financially recovered!!! Lastly, you must attend some counseling prior to closing in order to help insure the recovery is real.
FHA PROGRAMS ARE ALWAYS PRETTY NUMBER SPECIFIC
You can count on FHA to have very specific guidelines in order to run these programs. This one is not any different. You must be able to document a 20% decrease in household income. To do so we are looking at tax returns or other written earnings statements to show NOT ONLY individual, but HOUSEHOLD changes in decreased income by 20%.
That 20% amount must have occurred for no shorter than six (6) months and must have happened about the same time as the “adverse economic event”.
We have to then have a satisfactory credit history since the “economic event” for FHA to review. It really is pretty clear: A good candidate will have the following:
• They will have had good credit history prior to the adverse economic event;
• The credit was blemished during the time of the adverse economic event; and
• The borrower will have re-established a 12 month history of on time payments for the period after the adverse economic event.
WHAT IS THE WAITING PERIOD IF ONE MEETS THE CRITERIA ABOVE?
We are talking a year. All FHA loans are available. There is no limitation or additional fees or costs. There is no limitation as to loan size. The counseling program is required, but takes only about an hour to complete.
I like it and I think it is going to help a goodly number of folks possibly get an FHA insured loan that had abandoned that opportunity here in the past. It is a breath of fresh air and an opportunity. I can see many of my clients in short sales qualifying.
VALUE DISPUTES WITH FANNIE MAE AND FREDDIE MAC ARE A HOT TOPIC IN SHORT SALE NEGOTIATIONS RIGHT NOW… IT AFFECTS YOU
As we progress through the rest of the Recession and many properties start to find at least a bottom point as to value, Investors today are more focused than ever on “losing less” and trying to take advantage of an ever improving marketplace. In short, the investors are really focusing on value. Value disputes are an ever increasing part of our practice in negotiating short sale transactions today.
FANNIE MAE AND FREDDIE MAC DEALS ARE A HUGE PART OF OUR PRACTICE… ABOUT 53% OF OUR SHORT SALE DEALS
In our law practice negotiating shorts sales, we are always focused on who makes the decision for our short sale. In many (if not most cases) it is the owner of the loan aka investor aka lender aka lien-holder that plays an integral role as to whether our short sale application is approved at a particular offer price.
Fannie Mae and Freddie Mac constitute for us about 53% of our short sale practice as combined between them they own (and are thus the decision-maker) of about 53% of the short sales out there in the marketplace. They are a major market influencer.
WE ARE OPERATING UNDER GUIDELINES AND POLICIES TODAY THAT WENT INTO EFFECT JUST ABOUT A YEAR AGO ON NOV. 1ST, 2012
Those of you who have taken the advanced short sale class are well aware of these changes and know that BOTH Fannie and Freddie have exactly the same guidelines for short sale deals at least effective November 1, 2012.
What you may not know is that about at that same time we started to actually talk and interact with FANNIE and FREDDIE as regards matters of value. In fact, one could get a value at time of listing in order to determine a sale price and where these organizations may deem the value of the short sale property.
THE PROBLEM IS THAT THEIR VALUATION SYSTEM IS SOMEWHAT DEFECTIVE…
You see Fannie and Freddie rely to a great extent on what we call Automatic Valuation Methodology in their determination of value. It is valuable technology and can be of great help and assistance IF it is used in conjunction with a variety of complementary technologies. For example, “Zillow” is a wonderful consumer oriented software designed estimate of value, but I would never rely on it EXCLUSIVELY without having other value technologies to go along with it in order to keep from having an inappropriate reliance on only one valuation method.
In my practice of talking with homeowners, I underscore that assessed value, Zillow, web based values and all those “tools for value” are just that: “Tools”. I often say that none of these methodologies replace the quality actions of an experienced real estate licensee seeing and viewing the property and providing a comparative market analysis of the property given its nature as a short sale. It’s just the best way of getting a good estimate of value. I am concerned that Fannie and Freddie are ignoring alternate methods of value analysis.
FANNIE AND FREDDIE SEEM TO GIVE TOO MUCH DEFERENCE TO THEIR SOFTWARE DESIGNED SYSTEMS…
It stands to reason that Fannie and Freddie would want to try to control value because minimizing losses is the nature of our short sale practice.
With the November 1st newer regulations, Fannie and Freddie have pretty much determined what they will pay for in regards to short sale closing costs and fees so short sale market value becomes the paramount concern. They are taking that matter seriously and holding on to values that are sometimes high to the point of ridiculousness. It is a fight that our negotiators have learned to fight, but it is a fight that appears to not be going away any time soon.
WE ARE SEEING IT ESPECIALLY IN THE CONDO SHORT SALE ARENA
We all know that condos have taken a much bigger hit than stick built homes throughout Western Washington. In our practice we have seen a greater proportion of value disputes arise in the condo area. While there is little that can be done as we can’t raise value unless the market places causes a valuation increase, we CAN all be cognizant that Fannie and Freddie are more focused on achieving the highest value possible and plan for that given the type of listing we take (or determining whether you have a Fannie or Freddie loan at the time of making an offer).
This blog re-posted with permission from McFerran & Burns, PS. In this short survey there is no way to provide a complete analysis of “best practices” to work with Fannie and Freddie on valuation matters. The attorneys at McFerran & Burns, P.S. have offered to discuss specific situations with prospective clients. You may reach them at 253.284.3838.
The FHA has waived its three (3) year post foreclosure waiting period (well in some very specific cases and certain instances). This is now effective for any new case numbers for new loan applications that are assigned on, or after August 15th of this year.
WHO IS IMPACTED (OR WHO IS BENEFITTED) BY THIS NEW RULE?
Well probably just about everybody that our office has been working with over the last five (5) years.
*****Recent history of bankruptcy? Yes!!!
*****Recent history of foreclosure? Yes!!!
*****Recent history of a judgment? Yes!!!
*****Recent history of a short sale? Yes!!!
*****Recent history of loan mod? Yes!!!!
*****Recent history of Deed-in-Lieu? Yes!!!!
A LITTLE HISTORY OF “FHA” AND WHO RUNS THE SHOW
The Federal Housing Administration was created a long long time ago back in 1934. It was independent in a manner up until 1965 when it became a part of the U.S. Department of Housing & Urban Development. You probably know them as “HUD”.
If you have attended any of my classes during the Recession you know that FHA’s primary role is to act as an insurer of mortgage loans that are issued by FHA-approved lenders. In some searching today I found that FHA has insured more than 34 million loans in its history and that makes FHA the largest insurer of residential mortgage loans in the whole world!! Step aside AIG!!!
So FHA sets the guidelines and standards upon which they are willing to insure a mortgage loan and those guidelines are not hidden in any fashion, but published for all to see. There are a lot of rules: minimum credit score; down payment of 3.5% on a purchase; verifiable income and sources of income.
NEW GUIDELINES FOR PARTIES WHO “HAVE EXPERIENCED PERIODS OF FINANCIAL DIFFICULTY DUE TO EXTENUATING CIRCUMSTANCES”
The official name of the program is: “Back to Work-Extenuating Circumstances Program”.
Prior to the introduction of this program, typically FHA had a THREE YEAR waiting period after some of the enumerated events above like foreclosures and the like. That changed earlier this year. It is in full force right now. The new time to wait will be only a YEAR if you qualify.
Now you no longer have to wait TWO YEARS after a Chapter 7 or Chapter 13 bankruptcy. This program allows parties to make application for a new residential FHA insured loan after a foreclosure-like event far sooner than before. There is just a ONE YEAR waiting period.
HOW DOES ONE QUALIFY FOR A NEW FHA LOAN UNDER THIS PROGRAM?
To be eligible for a new FHA mortgage loan you must qualify for a waiver of the longer period that FHA has traditionally held. You must have experienced an “ECONOMIC EVENT:”
******PRE-FORECLOSURE SHORT SALE
******SHORT SALE
******DEED-in LIEU
******FORECLOSURE
******CHAPTER 7 BANKRUPTCY
******CHAPTER 13 BANKRUPTCY
******LOAN MODIFICATION
******FOREBEARANCE PROGRAM
After you have shown that, you must show that you have financially recovered!!! Lastly, you must attend some counseling prior to closing in order to help insure the recovery is real.
FHA PROGRAMS ARE ALWAYS PRETTY NUMBER SPECIFIC
You can count on FHA to have very specific guidelines in order to run these programs. This one is not any different. You must be able to document a 20% decrease in household income. To do so we are looking at tax returns or other written earnings statements to show NOT ONLY individual, but HOUSEHOLD changes in decreased income by 20%.
That 20% amount must have occurred for no shorter than six (6) months and must have happened about the same time as the “adverse economic event”.
We have to then have a satisfactory credit history since the “economic event” for FHA to review. It really is pretty clear: A good candidate will have the following:
• They will have had good credit history prior to the adverse economic event;
• The credit was blemished during the time of the adverse economic event; and
• The borrower will have re-established a 12 month history of on time payments for the period after the adverse economic event.
WHAT IS THE WAITING PERIOD IF ONE MEETS THE CRITERIA ABOVE?
We are talking a year. All FHA loans are available. There is no limitation or additional fees or costs. There is no limitation as to loan size. The counseling program is required, but takes only about an hour to complete.
I like it and I think it is going to help a goodly number of folks possibly get an FHA insured loan that had abandoned that opportunity here in the past. It is a breath of fresh air and an opportunity. I can see many of my clients in short sales qualifying.
VALUE DISPUTES WITH FANNIE MAE AND FREDDIE MAC ARE A HOT TOPIC IN SHORT SALE NEGOTIATIONS RIGHT NOW… IT AFFECTS YOU
As we progress through the rest of the Recession and many properties start to find at least a bottom point as to value, Investors today are more focused than ever on “losing less” and trying to take advantage of an ever improving marketplace. In short, the investors are really focusing on value. Value disputes are an ever increasing part of our practice in negotiating short sale transactions today.
FANNIE MAE AND FREDDIE MAC DEALS ARE A HUGE PART OF OUR PRACTICE… ABOUT 53% OF OUR SHORT SALE DEALS
In our law practice negotiating shorts sales, we are always focused on who makes the decision for our short sale. In many (if not most cases) it is the owner of the loan aka investor aka lender aka lien-holder that plays an integral role as to whether our short sale application is approved at a particular offer price.
Fannie Mae and Freddie Mac constitute for us about 53% of our short sale practice as combined between them they own (and are thus the decision-maker) of about 53% of the short sales out there in the marketplace. They are a major market influencer.
WE ARE OPERATING UNDER GUIDELINES AND POLICIES TODAY THAT WENT INTO EFFECT JUST ABOUT A YEAR AGO ON NOV. 1ST, 2012
Those of you who have taken the advanced short sale class are well aware of these changes and know that BOTH Fannie and Freddie have exactly the same guidelines for short sale deals at least effective November 1, 2012.
What you may not know is that about at that same time we started to actually talk and interact with FANNIE and FREDDIE as regards matters of value. In fact, one could get a value at time of listing in order to determine a sale price and where these organizations may deem the value of the short sale property.
THE PROBLEM IS THAT THEIR VALUATION SYSTEM IS SOMEWHAT DEFECTIVE…
You see Fannie and Freddie rely to a great extent on what we call Automatic Valuation Methodology in their determination of value. It is valuable technology and can be of great help and assistance IF it is used in conjunction with a variety of complementary technologies. For example, “Zillow” is a wonderful consumer oriented software designed estimate of value, but I would never rely on it EXCLUSIVELY without having other value technologies to go along with it in order to keep from having an inappropriate reliance on only one valuation method.
In my practice of talking with homeowners, I underscore that assessed value, Zillow, web based values and all those “tools for value” are just that: “Tools”. I often say that none of these methodologies replace the quality actions of an experienced real estate licensee seeing and viewing the property and providing a comparative market analysis of the property given its nature as a short sale. It’s just the best way of getting a good estimate of value. I am concerned that Fannie and Freddie are ignoring alternate methods of value analysis.
FANNIE AND FREDDIE SEEM TO GIVE TOO MUCH DEFERENCE TO THEIR SOFTWARE DESIGNED SYSTEMS…
It stands to reason that Fannie and Freddie would want to try to control value because minimizing losses is the nature of our short sale practice.
With the November 1st newer regulations, Fannie and Freddie have pretty much determined what they will pay for in regards to short sale closing costs and fees so short sale market value becomes the paramount concern. They are taking that matter seriously and holding on to values that are sometimes high to the point of ridiculousness. It is a fight that our negotiators have learned to fight, but it is a fight that appears to not be going away any time soon.
WE ARE SEEING IT ESPECIALLY IN THE CONDO SHORT SALE ARENA
We all know that condos have taken a much bigger hit than stick built homes throughout Western Washington. In our practice we have seen a greater proportion of value disputes arise in the condo area. While there is little that can be done as we can’t raise value unless the market places causes a valuation increase, we CAN all be cognizant that Fannie and Freddie are more focused on achieving the highest value possible and plan for that given the type of listing we take (or determining whether you have a Fannie or Freddie loan at the time of making an offer).
This blog re-posted with permission from McFerran & Burns, PS. In this short survey there is no way to provide a complete analysis of “best practices” to work with Fannie and Freddie on valuation matters. The attorneys at McFerran & Burns, P.S. have offered to discuss specific situations with prospective clients. You may reach them at 253.284.3838.
Let them know that you were referred from this web blog!
Happy Holidays!
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