Obama Plan and How it Affects Short Sales - Part 1
Obama’s new economic stimulus plan is in full affect and many short sale investors are wondering how this will change their business. This ”American Recovery and Reinvestment Act of 2009″ was designed to stabilize the housing market and restore consumer confidence in homeownership. That’s why they increased the tax credit for first-time homebuyers to $8,000 and eliminated the repayment provision. This means that more potential buyers are motivated to buy houses now. This helps our short sale students because we make the biggest profits selling to people who want to live in the property. That, along with many other reasons is why the new legislation is going to help us. (I obviously can’t speak for other groups since I don’t know what they are teaching and if they are producing any results. If you want to know what kind of results our program produces, check out some testimonials on our homepage, www.shortsaleteaching.com.)
The more drastic changes are contained in what is referred to as the “Homeowner Affordability and Stability Plan.” Here are the highlights and what role they play in our short sale endeavors:
1. The Home Affordable Refinance Program. Under this program, eligible borrowers may refinance loans that Fannie Mae or Freddie Mac (the government sponsored enterprises, or GSEs) own or guarantee. The program can help homeowner-occupants who are current in making loan payments and have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent. Cash out refinancings are not permitted. The program ends in June 2010.
How does this affect our short sale people? Well, first of all, most of the people calling you to get rid of their house don’t WANT their property. They don’t want to stay in their property. They don’t want anything to do with it. So they will need your short sale expertise regardless of the above provisions. But, as you can see, the ONLY ones eligible for this subsidy are those that fit within those stringent guidelines. Most of the people you will be dealing with will not be eligible to get a better loan and therefore will have to work out a loan modification. See the next section for more details on this option.
2. The Home Affordable Modification Program. This is a $75 billion program with lender, servicer, investor, and borrower incentives to make it work. The program is limited to homeowner-occupants who are at risk of default or already in default and who have loans at or below the maximum GSE conforming loan limit of $729,750 (or higher for 2-, 3-, and 4-unit properties). Loan modifications under the program may be made until December 31, 2012.
Our experiences have taught us that most people who try to work out a repayment plan end up in foreclosure anyway. The percentages are staggering. As a professional, you know better than the homeowner that in most cases, they will need your help anyway down the road. And, as an added bonus, this provision can actually help you! How? Think about it… this part of the legislation can allow you more time to do a short sale. One of the many strategies we teach our short sale students is that if they are running short of time, have the homeowner apply for a loan modification. It will hold off foreclosure proceedings in many cases and give short sale investors time to get the deal done. Once again, another reason why this new legislation helps our short sale students.
3. More Support for the GSEs. President Obama also announced more support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.
GSEs are government sponsored entities. This “bail-out” of failed government sponsored mortgage companies has yet to change much in the short sale world from our perspective. Lenders are still using the same procedures as they always have to approve short sales. How will this change the landscape of short sales in the next few years? Based on the past few months, it will produce little to no changes in the short sale approval process. My finger is extremely close to the short sale pulse and the backend bailing out of failed lenders has yet to adjust the standard short sale approval process that has been in place for decades.
In conclusion, there is one part of the plan that could affect some short sale investors (those that are not a part of our program) in a negative manner. And that is the extension of the high loan limits for FHA, Fannie Mae and Freddie Mac. This means that more buyers have the ability to use GSE loans. The issue is that when a new buyer uses a GSE as their lender, a hidden requirement in the loan guidelines states that the seller must be on title for 90 days prior to being able to sell the property to a new buyer. While most short sale investors have massive problems with this, we have found ways to work around this. If you are struggling with this, we can help you overcome this challenge. To learn more about how you can become part of the elite short sale investors in this country, with the tools and strategies to make tens of thousands of dollars per deal, go to our products and services page:
http://www.shortsaleteaching.com/products_services.html
As I have stated numerous times in the past, as the legislation changes, time and time again, it seems to slant towards helping us short sale investors continue to do a great work in this country.
To Your Success,
Phil Pustejovsky
When a primary residence is sold via Short Sale due to the owners inability to pay, what is the actual tax liability to the former owner??
Please advise as soon as possible as It is understood that any penalty or tax income liability will be waived. Is this true?
The Mortgage Debt Forgiveness Relief Act of 2007 outlines the rules on this issue (http://en.wikipedia.org/wiki/Mortgage_Forgiveness_Debt_Relief_Act_of_2007)
My residence is in a short sale and there is an offer on the table, which the first lein holder is willing to accept. The second lein holder, which is a HELOC, will not accept the $3,000.00 that the first is willing to pay them, which they say is all they can pay them based upon Freddie Mac Guidelines, so we find ourselves at a stalemate. Where can I find a reference to this guideline and is it a percentage or just a flat amount. Is there anything my agent and I can do to get this home sold?
You are caught in a catch 22 that many people are struggling with right now. The 1st mortgage will approve a short sale but not allow the 2nd mortgage to get more than $3000. The 2nd mortgage will do a short sale as well, but they won’t go away for $3000. What a dilemma! The good news is that there is a solution. We figured out how to solve this problem a few years back. My students know how to handle this type of situation as well. My best advice is that you should submit your information here: http://www.shortsaleteaching.com/sell_your_house.html and one of my students can contact you to help you. Great question Pam.
I have been told that by going through a short sale that my credit will NOT be affected and that I will still be able to turn around and purchase another house with no restrictions within the next 12 months. My mother doesn’t believe this to be true. Is my mortgage broker being too aggressive and making statements not totally accurate just to get the sale?
I posted a question regarding short sales and the if any affect on my credit rating and if can purchase a new home sooner than the normal 2 year wait. My mortgage broker is telling me that under Obama’s legislation short sales and their consequences are no longer a credit report item. My mother doesn’t think this is totally accurate. Is my mortgage broker misleading me in order to make a sale. And why was my post deleted from the blog?
I am not a credit report expert, so the following are only my opinions. Please seek a licensed professional for more detailed advice. My understanding is that as your mortgage payments go behind 30 days, then 60 days, then 90 days, etc, this shows up on your credit negatively. In fact, after you go past 120 days late, it reflects extremely negatively and many mortgage underwriters look at 120 day lates on a person’s credit report as if they were foreclosures. Back when I was a mortgage broker, many mortgage program guidelines specified that the borrower couldn’t have any 60 day lates, or 90 day lates, etc. So that is one big hurdle here with getting a conventional loan in the near future. As far as what shows up on the credit report, at this point, each lender reports different language. Countrywide typically reports to the bureaus the phrase, ‘Settled as agreed’. This is obviously not as good as if the lender reported “Paid in full.” So that is your second hurdle with obtaining a conventional loan.
There is a light at the end of this tunnel though. FHA has come out with a loan specifically for people who have had a short sale. But keep in mind that FHA has tons of rules and restrictions so you have to have the same job paying you very well for a long period of time, etc. Getting a short sale specific FHA loan down the road has a lot more to do with your income and your job and your down payment and a whole lot less to do with your credit report.
My best suggestion above all else is to contact Mike Ramos down in New Mexico. He is a credit report wizard and knows more than anyone else I have ever talked to about credit. You can find him at http://www.creditrescuenow.com
Is it true that banks that received money from the Obama stimulus package or now regulated to take a maximum of 45 days to give an answer in regards to a short-sale?
That would be the first that I have ever heard of this and I certainly didn’t read this in the bill, so I would not be able to verify your question, but keep this in mind; The definition of “an answer in regards to a short sale” is very important. Getting an answer from a lender is very quick once the lender has a BPO/appraisal in hand as well as all the short sale package docs. Between myself and all the students we are coaching on a daily basis, there are literally hundreds of short sales in the works in our group right now. And the short sales that are done correctly move very quickly. When you do things incorrectly, short sales move very slow. And the worst part is that the lenders will rarely tell you that something is wrong. They will simply tell you, “it can take a while for us to approve a short sale”. Meanwhile, your short sale is sitting in some deleted pile. So if you are worried about the speed at which you can get a short sale done, join our program and we’ll show you exactly how to get short sales done quickly.
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