New Short Sale Requirements from HUD

Last week, we discussed the Department of Housing and Urban Development’s (HUD) delay of the dual agency ban on short sales.  Now, there’s more to know about short sale requirements and how they’ll affect potential homebuyers.  Despite the government shutdown earlier this month, HUD announced new short sale requirements that are effective as of October 1, 2013.  These requirements represent changes to the current ones currently in use by the Federal Housing Administration (FHA).  A recent article from DSNews.com outlined key features of the new requirements and the ways in which they’re likely to affect sellers and homebuyers alike.

If you have questions about buying a short sale or a foreclosure, it’s important to speak to an experienced real estate attorney.  These transactions are more complicated than a typical home sale.  The dedicated lawyers at the Emerson Law Firm deal with short sales and foreclosures everyday, and they can answer your questions today.

Short Sale Sellers and the New Requirements

In order to sell a pre-foreclosure property, you’ll need to complete a short sale under the FHA short sale program.  As such, it’s important to know about the requirements of the program and what you’ll need to do to complete the sale:

·            First, if you’re the seller of the property, you cannot list the property with, or sell it to anyone with whom you’re related or with whom you have “a close personal or business relationship.”  In other words, the law would refer to this as an “arm’s-length” transaction.

·            Second, if you violate this “arm’s-length” requirement, you could end up being in violation of federal law.

·            Third, you must currently be in default on your mortgage, and your mortgage must specifically be in default on the date that the short sale closes.  In addition, you’ll have to make sure to have any additional liens on your property released before closing.  (If a lienholder demands a payment in order to release its lien, that lienholder will have to submit a written statement that says it will release the lien as soon as the amount is paid, according to DSNews.com).

In addition, one particular new condition for short sales is that sellers might have to make a final payment, or a “cash contribution” before the transaction closes.  According to DSNews.com, “this payment will reduce the deficiency balance.”

Mortgage Servicers and the New Requirements

What else do you need to know?  There are also requirements for servicers.  According to the new HUD requirements, servicers have to use a Deficit Income Test (DIT) in order to figure out a homeowner’s financial hardship.  This test is used to confirm all of a homeowner’s expenses.  What’s this for?  In brief, it’s used to ensure that the short-sale seller is also the party that’s currently occupying the property.  In other words, in order to be eligible for a standard pre-foreclosure sale, you must also be occupying the property—only owner-occupants are eligible.

Of course, there are some exceptions.  Homeowners who are eligible for streamlined short sales might not have to submit to financial hardship requirements, and in some of these cases, second homes and investment properties may be eligible for short sales.

Key Terms of the Arm’s-Length Transaction

While all the short-sale requirements are important, the key revision to the FHA’s short sale program is the arm’s-length transaction requirement.  We mentioned this above, but it’s important to know precisely what it is according to the law.

Under the FHA short sale program, an arm’s-length transaction is defined as “a short sale between two unrelated parties that is characterized by a selling price and other conditions that would prevail in an open market environment.”  In addition, “no hidden terms or special understandings can exist between any of the parties . . . involved in the transaction.”  This latter requirement refers to all parties involved in a short sale, including but not limited to: the buyer, the seller, the appraiser, the sales agent, the closing against, and the mortgagee.

These terms can seem confusing to many sellers and potential homebuyers.  If you have questions about buying a short sale or about the short sale requirements for current homeowners, contact the experienced real estate lawyers at the Emerson Law Firm today.

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HUD Delays “Dual Agency” Short Sale Ban

Why Do Short Sales Take So Long?

HUD Delays “Dual Agency” Short Sale Ban

Last week, the U.S. Department of Housing and Urban Development (HUD) postponed a dual agency ban on FHA short sales and deeds-in-lieu of foreclosure transactions, according to Realtor Mag.  You may remember reading about this ban back in July, when HUD issued a letter to mortgage servicers making clear that dual agency transactions wouldn’t be allowed on any pre-foreclosure transactions as of October 1, 2013.  What does that mean, exactly?  In short, the ban would effectively “prevent real estate professionals from representing both buyers and sellers” in these transactions.

As you might imagine, the National Association of Realtors (NAR) was up in arms over the potential ban.  Indeed, the NAR lobbied vehemently against the HUD policy.  As such, it looks like the NAR may be claiming a victory here, as HUD indicated last week that “it would be reissuing its July guidance to servicers” and would also “be removing the dual agency language” from that guidance.

As the real estate market continues to rebound, many people across Illinois and the country will be thinking about purchasing short sale properties.  How will the changes to the ban affect these potential homeowners?  In short, a change to the guidance is likely to make the process easier for both the buyer and the seller, since real estate agents will be able to continue representing both parties in these transactions.  If you have questions about buying a short sale or general questions about the housing market, don’t hesitate to contact an experienced real estate attorney today.

Timeline of the HUD Dual Agency Ban

According to DSNews.com, “the HUD prohibition had first been outlined in a July letter to mortgage servicers describing new anti-fraud requirements for short sales and deed-in-lieu of foreclosure transactions.”  The new guidance, HUD emphasized, was intended to “prevent fraud and abuse in pre-foreclosure sales,” as the HUD Inspector General had observed conspicuous signs of fraud and abuse in many of these transactions.

The new guidance would have significantly limited the role of real estate professionals in pre-foreclosure sales.  Naturally, the NAR objected to the HUD policy at the outset.  Gary Thomas, the NAR President, drafted a letter to HUD that emphasized the organization’s reasons for opposing the policy.  Thomas explained that HUD never provided any statistics or reports that depicted evidence of any short sale frauds or abuse by real estate agents.  In his letter, Thomas stressed that “NAR takes fraud very seriously . . . . If there is evidence of fraud by our membership, we would like to be part of an effort to develop policies that effectively address these issues.”  

The letter, according to DSNews.com, also emphasized that the new HUD policy would prevent real estate agents and brokers from effectively serving their clients.  For instance, homeowners face a greater risk of foreclosure if they can’t find a real estate agent who has specialized knowledge about short sales to list their homes.  Given that HUD has indicated that it won’t be enforcing this policy as of October 1, it looks like the NAR won the fight.  However, not all consumer advocates are happy about HUD’s shift in position.

Does NAR Control HUD?

In an article released by Consumer Advocates in American Real Estate (CAARE), consumer advocates emphasized its concern about the influence NAR might have within HUD.  The report drew up a timeline, explaining how HUD decided to lift its ban on dual agency after engaging in talks with the NAR.

We’ll have to wait and see if HUD continues to see fraud and abuse problems in pre-foreclosure transactions after electing to life the ban on dual agency.  In the meantime, the experienced real estate lawyers at the Emerson Law Firm can answer your questions today.  Don’t hesitate to contact us.

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New HUD Guidance to Help Manage Reverse Mortgage Risks

Just last week, the U.S. Department of Housing and Urban Development (HUD) published new guidance intended to help with the risks associated with the Federal Housing Administration’s (FHA) reverse mortgage program, which is also known as the Home Equity Conversion Mortgage Program (HECM).  In addition to providing reverse mortgages through the FHA, HUD has been helping with housing market recovery by providing housing counseling grants to organizations across the country.  

In early August, we told you about the problems the FHA has been experiencing with the HECM program.  In particular, we explained that the FHA has been making plans to crack down on its rules for reverse mortgages.  Many senior citizens across the country have been using reverse mortgages as a way of avoiding foreclosure, and HUD wasn’t prepared for this problem.  The new guidance from HUD is intended to “strengthen and protect FHA’s Mutual Mortgage Insurance Fund (MMI),” according to a HUD press release.

What is FHA’s Mutual Mortgage Insurance Fund?

In short, the MMI is a fund that provides insurance for mortgages made by the FHA for single-family homes.  When purchasing a home with a mortgage through the FHA, the borrower pays into the MMI.  And in the event that the borrower defaults, the MMI pays the lender.

And just as a reminder, reverse mortgages typically are geared toward senior citizens who “have equity in their homes and want to supplement their income.”  According to HUD, the only reverse mortgages for seniors that are insured by the federal government are those through the HECM program.  They’re only available through an FHA-approved lender, and order to be eligible, senior citizens must meet certain borrower, property, and financial requirements.

How Will the New Guidelines Help?

According to Federal Housing Commissioner Carol Galante, the recent changes “will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program.”  In other words, the new guidelines will make some changes to the HECM program so that the reverse mortgage option can remain in place for seniors.  Galante explained that the FHA hopes the guidelines will make sure that the HECM program “is a financially sustainable option for seniors” that can provide them with extra money to live comfortably in their homes through old age.

The HUD press release reminds us that in recent years, the demographics of those participating in the HECM program shifted to include riskier borrowers who in turn “added significant risks to the MMI fund.”  In particular, the HECM program began to see borrowers shifting from adjustable rate mortgages with access to a credit line to fixed rate mortgages where the borrower takes all available funds at once.

In response to the FHA’s annual report to Congress on the status of the MMI fund, Congress passed the Reverse Mortgage Stabilization Act of 2013.  This new law authorizes the HUD Secretary to make changes to HECM if they’re “necessary to improve the fiscal safety and soundness of the program.”

In addition, FHA-approved lenders will also receive a new guide assessing financial risk when it comes to reverse mortgages.  According to HUD, the guide will help lender to implement certain risk management reforms, including:

·      Changing mortgage insurance premiums and principal limit factors

·      Restricting the among of money that seniors can borrow at the closing of a reverse mortgage

·      Requiring a financial assessment for HECM borrowers

·      Requiring borrowers to set aside some of the loan proceeds at the closing in order to pay property taxes and insurance

If you’re a senior who is concerned about avoiding foreclosure, or if you have questions about financial stability and the reverse mortgage process, contact the experienced attorneys at the Emerson Law Firm today.

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Mortgage Servicing Problems Continue

Have the mortgage settlements with big banks done any good?  A recent article in the Chicago Tribune reports that many people remain concerned about the ways in which mortgage servicing companies deal with customers.  Indeed, the Consumer Financial Protection Bureau (CFPB) released a mortgage servicing report that identified significant problems “at banks and nonbanks alike.”  So, are mortgage servicers actually interested in keeping homeowners in their homes?

According to the CFPB’s investigation, mortgage servicers continue to poorly manage loans, creating “significant issues that could cause homeowners to miss payments, threaten their credit histories and plunge them into foreclosure.”  The CFPB undertakes investigations like these in order to protect consumers before they’re affected.  Richard Cordray, the CFPB Director, explained in a press release that the report “highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law.  According to Cordray, “fixing both is a priority” for the CFPB.

As the market continues to recover, homeowners don’t need the added stress of worrying about whether their mortgage servicer is acting legally and ethically.  If you have questions or concerns about your mortgage payments or your mortgage servicer’s practices, the experienced attorneys at the Emerson Law Firm can speak with you today.  

What Are (or Aren’t) Mortgage Servicers Doing?

While the CFPB report didn’t name any specific companies, the related investigation did uncover similar problems across the board when it comes to mortgage servicing companies.  According to the Chicago Tribune, these problems included: “sloppy account transfers between mortgage servicing companies, delayed payment processing, and loan servicers that continue to deal inconsistently or inadequately with homeowners who are trying to modify their homes and stay out of foreclosure.”

As a result of these recent findings, the CFPB has opened new investigations into some of these mortgage servicers.  At the same time, even larger problems may be on the horizon.  Based on the CFPB’s report, it looks like certain nonbanks may not have the proper procedures in place to make sure that they comply with the federal laws that have been enacted to protect consumers.  And in some cases, those nonbanks have even violated those same federal laws.

More Settlement Money Paid, but More Problems

Officials who keep track of the $25 billion national mortgage settlement have reported that “the nation’s five largest servicers are close to offering the total sum of assistance they promised” back in February of 2012, according to their own records.  Yet, the fact that a large sum of money has been paid doesn’t mean that mortgage-servicing problems have been solved.  In fact, according to the Chicago Tribune, “while the financial portion of the settlement may be close to being met, it’s unclear whether lenders have made much progress in improving their servicing standards.”

For example, just this past June the independent monitor for the settlement, Joseph Smith, Jr., discovered that many mortgage servicers continue to create problems for lenders when it comes to loan modification processing, inquiring about bills and statements, and providing a “single point of contact at a mortgage servicer” for all consumers.

This news comes at about the same time as an important 9th U.S. Circuit Court of Appeals ruling.  The Court reversed a lower court holding concerning two loan modification claims against Wells Fargo & Co.  Now, those cases will proceed, and they’re arguing that Wells Fargo illegally denied permanent HAMP mortgage modifications to homeowners who completed all the necessary steps.

If you have concerns about avoiding foreclosure or getting a mortgage modification, contact an experienced foreclosure defense attorney today to discuss your case.

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New HUD Grants for Housing Counseling

The housing crisis isn’t over, and the U.S. Department of Housing and Urban Development (HUD) hopes that the grants it provides will help American homeowners to avoid foreclosure.

Just today, HUD released the news that it would be providing more than $40 million in housing counseling grants across the country.  In all, the funds will be split between 334 national, regional, and local organizations, according to the HUD press release.  The agency reports that, as a direct result of the grants “and the additional funding they [will] help leverage, more than 1.6 million households will have a greater opportunity to find housing, make more informed housing choices, or keep their current homes.”

What Will the Grant Funds Support?

According to the department’s press release, the funds will directly support housing counseling programs that are currently run by 27 national and regional organizations, 8 multi-state organizations, 277 local housing counseling agencies, and 22 State Housing Finance Agencies (SHFAs).  In addition to funding agencies that directly provide housing counseling, HUD has also allocated $2 million for two different national organizations that train housing counselors.  These organizations provide the “instruction and certification necessary” for housing counselors to “assist families with their housing needs.”

The HUD Secretary Shaun Donovan made clear that the grant funds will have a positive impact on families throughout the country.  He explained that the “HUD-approved counseling agencies this funding supports are crucial in helping families manager their money, navigate the homebuying process, and secure their financial futures.”

He went on to clarify that current statistics prove that “housing counseling works.”  After families have undergone housing counseling, many have been able to find homes or keep their current homes, both facts that help to “promote neighborhood stability in the long term.”  In fact, a 2012 HUD report showed that in both families who purchase their first homes and families who struggle to avoid foreclosure, housing counseling significantly improved their chances of remaining in their homes.

In addition to housing counseling agencies, the recent grants also shed light on HUD’s new Office of Housing Counseling.  This new office “streamlined the application process for these grants” and made certain procedural improvements, both of which allowed more agencies to apply for and to be awarded grant money.  Specifically, the new office substantially reduced the administrative burdens that grant applicants typically encounter.

What Do Housing Counseling Agencies Do?

According to HUD, housing counseling agencies provide a number of services, including:

·      Helping homebuyers and homeowners to “realistically evaluate their readiness for a home purchase,” thus helping these families to avoid situations in which they can’t pay their mortgages and could face foreclosure.

·      Helping homebuyers and homeowners to better understand financing issues and down-payment options.  For many families, understanding the finances of homeownership can be difficult, and housing counseling agencies can help.

·      Helping families to find affordable rental housing.

·      Providing “financial literacy training” to families and individuals who have credit problems that are preventing them from buying a home.

·      Assisting homeless persons to find transitional housing so that they can eventually find a permanent home.

While housing counseling agencies can provide important information to homeowners about avoiding foreclosure, you should also have a dedicated foreclosure defense lawyer on you’re side if you’re at risk of losing your home.  Contact us today to discuss your options.

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