“Both short sales and foreclosures are considered negative by the score, because our data shows us it’s very predictive of future credit risk,” Tom Quinn, of Fair Isaac, said. “The claim that doing a short sale is not going to hurt your score is false. It’s inaccurate.”
In both cases, banks will be wary of those that short sell because that person forced the lender to lose a lot of money.
One company that calculates credit scores says that a short sale will create a drop of between 120 and 130 points on the credit score of a consumer whose record is clean otherwise, the article says. And with foreclosures, the credit score hit can range from 130 to 140 points. And for those with spotty credit records, the drop for short sales is 15 to 25 points as opposed to 10 to 20 for foreclosure. The difference in the drops obviously stems from the risk in loaning to the consumer with a bad score already being factored in.
However, not every short sale is worse than being foreclosed on. The article says that if a consumer is considering a short sale and is at the point of making the transaction, then their credit score wouldn’t drop as much as if they did not make their mortgage payment for six months.
The HAFA program is a volunteer program basically although those servicers that have participated in the HAMP program must offer the HAFA program to homeowners under certain circumstances. The servicers have to opt into this program and they have to do this by December 31, 2009.
The program begins on April 5, 2010.
The HAFA program is only for:
– Principal Residences
– First mortgages
– The mortgage is delinquent or will be delinquent in the foreseeable future.
– The unpaid balance is less than $729,750.
– The monthly mortgage payment is more than 31 percent of the borrower’s gross income.
On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP is available at MakingHomeAffordable.gov.
HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks.
HAFA is a complex program, with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure. HAFA:
– Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
– Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
– Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
– Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
– Uses standard processes, documents, and timeframes/deadlines.
– Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
1 OUT OF 10 HOMEOWNERS IN DEFAULT OPT FOR MEDIATION
The Nevada Supreme Court says more than 3,400 homeowners who’ve received notices of default have requested mediation under a new program that took effect July 1. Under the program administered by the Supreme Court, homeowners who receive default notices have 30 days in which to seek mediation.
Chief Justice James Hardesty, on Wednesday November 26, 2009, said 372 mediations have been conducted so far, and another 805 have been scheduled. Another 1,400 cases have been assigned to mediators.
From July through October, the court says more than 29,000 notices of default have been filed statewide.
The Kansas Supreme Court ruled in Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, that MERS, a company designated as nominee on millions of real estate security instruments, has no standing and can not initiate or maintain an action to foreclose a defaulted loan. A private company, MERS was created by a combination of banks and government sponsored enterprises to facilitate electronic registration and transfer of real estate instruments. The name MERS, an acronym for Mortgage Electronic Registration Systems, describes the reason for its creation and its limitation as an entity.
This is another nail in the coffin for MERS. Beginning in Florida, with similar cases in Ohio and New York, courts around the country are rejecting MERS as a real party in interest before the court. In a recent Washington bankruptcy court case, the judge was particularly blunt about his rejection of MERS.
While this case is not truly a “Landmark” for the country, as a determination by the highest court in Kansas, it is the law of the land in that state. Complex trusts administered by giant banks have been hiding behind MERS as owners of bundled home loans in aggregations are called “collateralized debt obligations”. Perhaps the Landmark National Bank case is another step toward dispatching the nameless and faceless financial institutions takiing homes from working families across the country. The same banks who just can not seem to find a way to modify the loans so that borrowers can keep a roof over their heads.
On July 24, I attended a Neighborworks workshop, at Aliante Station and Casino, to assist roughly 1,000 Las Vegas Valley homeowners struggling to remain in their homes. Homeowners also met face-to-face with their mortgage company and a U.S. Department of Housing and Urban Development-certified counseling agency to work on a solution to help them stay in their home. The workshop is hosted by the Hope Now Alliance, the city of North Las Vegas, U.S. Department of the Treasury and NeighborWorks America Sponsor Homeownership Preservation. Hope Now is an industry-created alliance of mortgage servicers, investors, counselors and other mortgage market participants.
The following lenders were in attendance:
American Home Mortgage
Bank of America/Countrywide
Home Loan Services
Taylor Bean & Whitaker