Things to Consider When Considering a Short Sale

Here some consideration you should take when thinking is it worth doing a short sale? Or should I just give up and let the house go to foreclosure!!

Issue	Foreclosure	Successful Short Sale
Future Fannie Mae Loan- Primary Residence (Effective May 21,2008)	A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.	A homeowner who successfully negotiated and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
Future Fannie Mae Loan- Non Primary Residence (Effective May 21, 2008)	An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.	An investor who successfully negotiated and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
Future Loan with any Mortgage company	On any future 1003 Application (Standard Loan Application), a prospective borrower will have to answer YES to question C, in Section VIII, that asks, “Have you had property foreclosed upon, or given title or deed in lieu thereof?” This will affect all future rates.	There is no similar declaration, or question regarding a short sale.
Credit Score	Score may be lowered anywhere from 150 to over 300 points. Typically, this will affect score for over 3 years.	Only late payments on mortgage will show, and after sale, mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points, if all other payments are being made. A short sale’s effect can be as brief as 12 to months.
Credit History	Foreclosure will remain as a public record on a person’s credit history for 10 years or more.	A short sale is not reported on a credit history. There is no specific reporting item for “Short Sale.” The loan is typically reported as “Paid in full, settled.”
Security Clearances	Foreclosure is the most challenging issue against a security clearance, outside of a conviction for a serious misdemeanor or felony. If a client has a foreclosure, and is a police officer, in the military, a government employee, a security clearance, in almost all cases, clearance will be revoked and position will be terminated.	A short sale, on its own, does not challenge most security clearances.
Current Employment	Employers have the right, and are actively and regularly checking the credit of all employees who are in sensitive positions. A foreclosure, in many cases, is grounds for immediate reassignment or termination.	A short sale is not reported on a credit report, and is, therefore, not a challenge to employment.
Future Employment	Many employers are requesting credit checks on all job applicants. A foreclosure is one of the most detrimental credit items on applicant can have, and in most cases, will challenge employment.	A short sale is not reported on a credit report, and is, therefore, not challenge to employment.
Deficiency judgment	In 100% of foreclosure (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.	In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.
Deficiency Judgment Amount	In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases, this will result in a lower sale price, and a longer time to sell in a declining market. This will result in a higher possible deficiency judgment.	In a property managed short sale, the home is sold at a price that should be close to market value, and in almost all cases will be better than an REO sale, resulting in a lower deficiency amount.

  

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Important Changes Starting November 1st!

I figured I share this important information with you. Change is happening and it is important that you are aware!

Short sales made easier

By · Bankrate.com

The Federal Housing Finance Agency announced new short sale rules today that could make it easier for borrowers to sell their homes for less than what they owe on their mortgages.

The new rules go into effect Nov. 1 and apply to mortgages owned by Fannie Mae and Freddie Mac, which account for more than half of the outstanding mortgages in the United States.

Here are some of the main changes:

Fannie Mae and Freddie Mac will allow servicers to expedite the short sale process for borrowers who have missed three mortgage payments, have credit scores lower than 620 and are going through serious financial hardship. These borrowers generally are asked to submit extensive documentation to prove hardship. The documentation requirement will be reduced, and in some cases eliminated, starting Nov. 1st

Borrowers who are struggling to pay their mortgages because of divorce, disability, job transfer or death of a co-borrower will have their short sale process expedited even if they are current on the mortgage.

Service members who are being relocated will be automatically eligible for short sales and will not be responsible for the balance on the loan after the home is sold.

Fannie and Freddie will limit the amount paid to second mortgage lenders to $6,000. The payment is currently used as an incentive to get the second lien holder to agree to the sale. Some lenders slow down the process as they try to negotiate higher payments. With the cap, lenders will know upfront what they can receive and won't drag the process -- at least, that's the FHFA's theory.

These new rules are part of an effort that started in May, when the FHFA established timelines for servicers doing short sales. The guidelines require servicers to respond to a short sale within 30 days of receipt of a short sale offer. The borrower must be given a final decision within 60 days.

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Bank Terms: What They Mean to You!

Bankrate has assembled all the information below for you to understand the banks terms better

Some of the institutions that use these terms are: Chase, WaMu, EMC (J.P. Morgan Chase corporate owner), Countrywide Home Loans (Bank of America corporate owner), CitiMortgage, IndyMac Federal Bank (government agency: FDIC)

Definitions of common terms:

•  Repayment plan: The homeowner will make the regular mortgage payments plus a little extra to cover delinquency payments and fees. 
• Interest rate reduction: Refinancing your mortgage interest rate to a lower rate, thus lowering your monthly payments.
• Extension of loan term: Extending the term of the loan, say from 30 years to 40 years, to lower the monthly payments.
• Conditional forbearance: The borrower is allowed to make lower payments for a limited time, typically three months. 
• Stay on foreclosure: A temporary, set period of time that gives homeowners protection from foreclosure so they can recover and resume payments.
• Principal deferral: The lender defers part or all of the principal payment, thus lowering your monthly payments.
• Short sale: The lender agrees to sell the house for less than the outstanding mortgage amount and accept the loss.
• Deed in lieu of foreclosure: Homeowner gives his home (the deed) to the lender in exchange for the lender canceling the loan. The lender forgives any deficiency in the loan that isn't covered by a future sale.

 

 What is target debt-to-income, or DTI, ratio? 

 This is the ratio between how much you owe each month on personal debt and how much you earn. It calculates the percentage of debt you are carrying in relation to how much money you are making, in order to give the lender an indication of how much additional debt you can take on.

Add up your fixed monthly expenses such as your car payments, minimum credit card payments and any other regular debt obligations such as monthly child support or student loans (you don't have to include bills for things such as groceries or utilities). Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance, homeowners insurance and property taxes) and divide the total by your gross monthly income. Lenders typically say a DTI ratio should be no higher than 38 percent.

Tips for getting through the process:

• Be patient.
• Stay focused.
• Provide only relevant information.
• Expect to repay as much as you can.
• Lender will not reimburse fees paid to foreclosure rescue companies.
• Call sooner, rather than later. Once you're headed toward foreclosure, you'll have fewer resources and the workout process will be more onerous.
• Use your loan number to access the online application.
• Don't fudge or falsify your current income or expenses.
• Check back: Even if you previously were told no, you now may qualify.
• Not on the table: Principal reduction, interest-only and cash-out refinancing.
• The more payments you miss, the harder it will be for you to qualify.
• Consult a mortgage counselor and tax adviser before you consider a short sale.
• When you call, get the name of the person you spoke to and, if possible, that person’s telephone extension. Ask when you should follow up, and then call back at that time.
• Consult your tax adviser to find out the potential implications of loan modification options.
• If you have two loans with different loan servicers, call the servicer of the second loan first

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