Administration Rolls Out Short Sale, Deed-in-Lieu

Options for HAMP Loans That Canít Be Modified

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(From /Inside Mortgage Finance/)

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The Obama administration has released detailed guidance on a new Home
Affordable Foreclosure Alternatives program that features cash
incentives for borrowers, servicers and investors for executing short
sales or deeds-in-lieu of foreclosure.

The HAFA program is available for loans that otherwise meet the criteria
for the Home Affordable Modification Program but canít be restructured
successfully. The guidelines issued recently as HAMP Supplemental
Directive 09-09 only apply to loans not owned or securitized by Fannie
Mae and Freddie Mac, which have their own short sale and deed-in-lieu
incentive programs.

The new program wonít take effect until April 5, 2010, and servicers are
expected to develop their own written policies to implement it. All HAFA
loans must first be considered for HAMP modification, and data collected
in that process can be used for assessing a possible short sale or
deed-in-lieu transaction.

If the servicer hasnít already done so, the borrower must be advised in
writing about the availability of a short sale or deed-in-lieu and have
14 days to mull it over. Servicers are expected to perform a financial
analysis to determine whether a short sale or DIL is in the best
interest of the investor or mortgage insurer, but the HAMP net present
value model does not project such cash flows.

The servicer has to get an independent property valuation that cannot be
charged to the borrower, and a title check must also be completed. If
neither a short sale nor DIL is available, written notice must be made
to the borrower.

Before approving a short sale, the servicer has to determine the minimum
net proceeds that will be accepted by the investor. Customary
transactions costs must be taken into account. The program requires
servicers to use a standard short sale agreement that outlines the
responsibilities of the servicer and the borrower that includes a fixed
termination date not less than 120 days after the agreement takes effect.

A DIL transaction must include the full release of the debt and waiver
of all claims against the borrower. The borrower has to agree to vacate
the property by a certain date, leaving it in clean condition with a
marketable title.

Servicers may agree to a DIL even if the borrower hasnít already made a
good-faith effort to market the property, if thatís acceptable to the
investor.

*/ No Foreclosure/*

Servicers may initiate or continue with a foreclosure proceeding during
the short sale or DIL process, but the foreclosure canít be completed
while assessing a borrowerís eligibility, waiting for the return of an
executed agreement, during the term of a short sale agreement or pending
transfer of the property during a DIL.

The borrowerís mortgage payment cannot exceed 31 percent of gross
monthly income while a short sale or DIL is pending, and servicers may
waive payment altogether. The borrower is responsible for clearing up
any other liens on the property, although the servicer may negotiate on
the borrowerís behalf. Second lien holders can get up to $3,000 from the
proceeds of the sale to release the loan.

Following successful completion of a short sale or DIL, the borrower can
get up to $1,500 to cover relocation expenses. Servicers are paid $1,000
to cover administrative and processing costs for these transactions.
Investors will be paid a maximum of $1,000 for allowing up to $3,000 in
short-sale proceeds to be paid to second-lien holders.

The program features a complete set of required standard documents and
reporting requirements. As with HAMP itself, Fannie Mae is serving as
the administrator for the short sale/DIL program and Freddie is the
compliance agent.