It’s Easy To Determine If You Qualify For A Loan Modification

Just last year we’d spend way too much time with our clients trying to determine whether or not they qualified for a mortgage modification. In 2010 it takes me just a few minutes and is about 100% accurate. That’s because the banks, in their rush to streamline, have become standardized and predictable.

Standardized – The Making Homes Affordable Program (MHA) Guidelines have become the standards. Other programs are modeled after the MHA. None of the other programs are as rich and all are harder to get. But the guidelines have become universal.

I say predictable because the sheer numbers of applications has forced the banks to routinize everything – including erroneous rejections – to a point where it is pretty obvious to us veteran loan mod freaks.

Homeowners will get a mod if they, 1) have a typical hardship, 2) the loan qualifies (non-jumbo, done before Jan. 1, 2009), have correct ratios, 3) live in the home, and are in default. That’s not to say that landlords are SOL…they just have less likelihood of approval and must have lower expectations.

Don’t mistake qualifying with getting approved! Thousands of qualified applicants get rejected every day! Being qualified is just the beginning of the journey. You have to know how to navigate this bureaucratic, convoluted, administriviated maze (don’t bother to right-click – I made up that word!). You can’t do that with advice crafted for the masses – advice you get from the banks themselves or from the government. You need to get advice from a source that has actually succeeded in getting throught he maze – time and again.

You should have the advantage of an insider, a street-smart advisor who has been at the game table for a long time. Someone who is unabashadly on your side – not a government entity and certainly not a bank employee or site. If you follow the advice of the government or bank sponsored entities you can only expect to get info tailored for the masses. That’s like going into a street-fight with training in only boxing. You are totally unprepared when the opponant kicks you in the ear! You’ll have to pay for such advice. But, you get what you pay for.

Rockwood is an author and outspoken homeowner advocate. Want more insider tips on Mortgage Modification? Visit Rockwood’s site about DIY Loan Modification at Home Loan Modification

Short Sale 101, Basics Of A Short Sale

If the value of your home has declined below the amount you owe on it you are said to be “upside down” or “underwater”! Both terms conjure up negative thoughts, and, rightly so. With all the due diligence you put into the purchase, and all the business acumen, actuarial smarts, underwriting/appraising and brokerage experience put into the lender’s decision to accept the home as collateral it’s a strange thing indeed that the deal went south. But, it did go south. In fact nearly 20 million homeowners in the US are facing this scenario right now. It’s psychologically bad for all of them. It’s financially bad for those who must sell because of a job loss, reduction in pay, divorce, death or other reason. For them, it’s a financial disaster.

A short sale can be a great solution for such people. The lender has to approve such a sale because they have accepted the home as collateral for the debt. How the sale works, what happens to the “short” amount, what you tax liabilities are and how to be protected from future deficiency lawsuits are the right questions to ask. Let me start with question one, how they work.

This is How a Short Sale Works

Short sales work the same as traditional sales, with one additional step. When a solid buyer and a good offer are found, it must be submitted to the lender along with an explanation of your situation and a settlement summary (HUD-1) document showing the final payout to all parties if this deal is approved.

The application also includes a HUD-1Worksheet of the expenses involved in the execution of this purchase contract, and showing the net proceeds that the lender will receive. One of the items on the HUD-1 is the payoff amount of any “junior” lien holders. Typically, these lien holders settle for a small fraction of the amount owed as their claim on the collateral is subordinate to the 1st, or senior mortgage. That, by the way, is why they always charge higher rates – they are more exposed to loss.

Your lender then reviews the application and gets their assessment of the value of the home and the appropriateness of the offer. They do this by hiring a local Realtor to provide a Broker Price Opinion (BPO) or by using the Automated Valuation Model (AVM). The AVM is a computerized estimate of net proceeds if the home goes to foreclosure and the lender must sell it themselves. Usually this evaluation takes at least 30 days.

There are common misconceptions – myths – about short sales. Here are the most common ones I hear.

1. Banks would rather foreclose than approve a short sale

This is a common error. The reality is that banks do not want to foreclose on your property because the process is lengthy and costly. After all, the lender has to sell the property on the market eventually. Banks lose less through a short sale than a foreclosure.

Myth 2 – You have to be in default to get approved for a short sale

This is not true. The factors considered are whether or not the offer is reasonable and whether or not the buyer seems qualified.

3. Short Sales take too long to succeed after the foreclosure process has begun

This is a dangerous misconception. Many homeowners fail to pursue short sales believing that it’s too late. Actually, short sales are effective workout solutions right up to trustee sale (sheriff’s sale).

Lenders welcome the short sale application as an alternative to foreclosure. It’s just better for all parties, including the community (vacant, bank-owned homes are a real problem).

Myth #4 – Listing My Home as a Short Sale is an Embarrassment

It is understandable to have reservations about letting the world know that you owe more on your home than it is worth. However, according to recent estimates, one out of five homeowners in the U.S. is in the same situation. Estimates are that 40-60% of U.S. home sales in 2009 and 2010 will be short sales or foreclosures, you are not alone.

Myth #5 – Buyers are Not Interested in Short Sales

Smart agents and their buyer-clients evaluate deals based on the facts. The fact is that short sales are a significant part of the housing inventory and often the best deals are short sales. So, this is a misconception.

Short sales will continue to be an important part of the housing market stabilization. They are better than foreclosure, for all parties involved.

Want to find out more about actually getting short sales done? Visit Rockwood’s site at Home Loan Modification