Don't let the bank foreclose...do a short sale

By Les Christie, staff writer March 29, 2010: 2:30 PM ET

NEW YORK (CNNMoney.com) -- Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks and months, when the government starts handing out cash to encourage lenders to close these deals.

"In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete," said Chris Saitta, CEO of Equator, which produces short sale software. "Things would just fall into a black hole and not come out again".

But, recently, a few things have happened: 1) the banks have finally begun to get an organized, trained staff and 2) the banks may be realizing that they lose less money in a short sale as opposed to a foreclosure 3) the govt has just come out with the HAFA program that incentivizes the lender, the investor and the homeowner when they complete a short sale according to HAFA guidelines. Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 "relocation incentive" and servicers will get $1,500 for handling a short sale. And the investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they're willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days. Also, not mentioned in the article was the requirement that the lienholder release the homeowner of any deficiency.

If you are behind on your mortgage, or believe that you will fall behind soon and your home is worth less than you owe...please call me 561-602-1258. Or email me with your contact information if you prefer. Just don't ignore the situation, get in front of it and get your lender working with you, not against you.

FHA, 1st time buyers, and perceptions...

Nearly 40% of existing homes purchased in November used a Federal Housing Administration (FHA)-insured mortgage, according to a National Association of Realtor (NAR) survey.

As a result, the FHA is having to defend the program, saying that it is well enough capitalized to avoid any major losses in case of surging defaults. Earlier this month, Department of Housing and Urban Development secretary Shaun Donovan was before Congress defending the FHA, and ensuring the House Financial Services Committee that the single-family insurance program is “not the next subprime.”

The increase in demand caused the capital reserve ratio at the FHA to drop below the Congressionally mandated 2% minimum, leaving HUD and the FHA scrambling to ensure the FHA program’s soundness.

A number of proposals are being considered, including the raising of  insurance premiums, raising the minimum FICO (credit score) requirements, raising the minimum required down payments and reducing the allowable seller contribution...all of which will make it more difficult for buyers to qualify for and obtain financing (and hence, not good for sellers).

Other results from the Realtors confidence index showed first time homebuyers accounted for 51% of all transactions and are actively competing with investors for distressed properties...

And, distressed properties aren’t just affecting transaction price, however. The presence of distressed properties is influencing buyers’ perceptions of other homes for sale and many buyers have pricing expectations that treat every property as if it were a distressed sale.

Additionally, HUD issued a ruling that borrowers who were in default on their mortgage at the time of a short sale are not eligible for an FHA-insured mortgage for three years...