Obama’s Loan Modification Program Under Fire

Obama’s Loan Modification Program Under Fire

In an effort to help with their mortgages and keep homeowners from foreclosure, President Obama has instituted certain government loan modification programs.  While thousands of people have benefited from the programs, there are still a multitude of problems with the government’s plans.

Class action lawsuits are currently being filed against various banks for their seeming unwillingness to work with borrowers on the verge of foreclosure.  Some borrowers swear that their banks are going as far as ignoring their phone calls or letters.  But why are the banks unwilling to work with the borrowers?  For one, banks will make more money if the borrowers are forced to foreclose then if they work with borrowers on a loan modification plan.

And so now, lawmakers are searching for ways to encourage banks to work with the borrowers.  Some plans are offering incentives to the banks.  Other plans include penalizing banks who are ‘ignoring’ their borrowers.  Though Obama’s plan is a start, it’s not the final solution, and only when the banks are forced to cooperate with the borrowers, will a solution be viable.

Reasons Banks Reject Short Sales

December 1, 2009 by  
Filed under Reasons Banks Reject Short Sales

Reasons Banks Reject Short Sales

Unless a property is marketed as “Short Sale Approved”, no one has any way of knowing whether a short sale offer may be accepted, not the buyer’s agent, not the listing agent, nor the seller. Simply because a listing is advertised as a short sale doesn’t mean the bank has agreed to consider a short sale offer. It means the listing agent and seller hope it will sell as a short sale and hope the bank will accept the offer.

Often times an agent will list a home as a potential short sale and state the asking price too low. A short sale list price normally has no connection to the actual price a bank may accept. The list price may be too high to pull in an offer or too low for the bank to accept. The house needs to be listed at an appealing price to entice an offer from a prospective buyer, but not too low that the bank will inevitably reject it.

The seller may not qualify for a short sale opportunity. If the seller is asking for debt forgiveness and they have assets they are at a disadvantage if they are unwilling to work out a repayment plan with the bank. The bank will want to see documentation of their current financial status and a hardship letter from the seller that explains why they can not afford to continue making mortgage payments. The seller needs to explain what hardship they have suffered. Just wanting to walk away and get a cheaper house is not a reason to do a short sale and most likely the lender will deny the short sale request.

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The downfall may also be on the buyers end. The desire that many prospective buyers have to purchase a home at a great (below market) price and the financial means to do so are two different are not contingent on one another. It is important to have a qualified buyer before an offer is made. Banks will require proof of funds or pre-approval letter at the time an offer is made. They want to see ability to obtain financing before starting any negotiations. If a buyer is unable to prove funds, the offer will be objected immediately.

It is extremely important to have assistance putting your short sale package together to submit to the lender. These lenders are overwhelmed and understaffed. If the package is not labeled or not packaged as they instructed, they may reject the short sale just because it did not meet their specifications. It is vital to include all the required documents at once. Although it seems simple, this may be the most common pitfall in rejected short sale offers.

There are many reasons why banks reject short sales. Short sales occur when a bank agrees to accept an amount for the sale of a home that is less than the balance owed. Typically, a highly motivated seller is looking to unload their mortgage obligation and avoid foreclosure.

The three most common reasons a property does not qualify for a short sale are: the offer price is too low, the buyer does not qualify, or the seller does not qualify for the short sale.

The Offer Price is too Low

Typically, the bank will require an appraisal to establish the value of the home before going forward with any approval. The bank may also request a broker price opinion (BPO) be performed instead of the full appraisal.  A BPO measures the home’s value by looking at the comparative sale prices of three recently sold homes in the neighborhood. This process is usually quicker and cheaper for the bank and is common with short sales.

Should the offer price be significantly lower than the BPO, a bank is less inclined to accept the offer for the sale of the home. It is the bank’s discretion whether or not to accept the terms of the offer.

A bank will typically weigh the cost to sell, cost to hold and foreclosure costs when making a decision to sell a home.

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The Buyer Does Not Qualify

A bank will require evidence that a borrower qualifies for the home before accepting an offer from them. A borrower must be financially capable of purchasing a property. The items a bank will typically ask for are:

  • Credit report
  • Evidence of sufficient assets to close transaction
  • Preapproval lender from lender with sales price specifically detailed

The Seller Does Not Qualify

If the seller is involved in foreclosure proceedings, the bank may consider holding the property. If the bank has already invested money into the foreclosure, they may want to hold the property and try to sell it themselves in the open market.

A seller should work with their lender to avoid foreclosure proceedings and keep all lines of communication open. A seller should contact their bank’s loss mitigation department and find the representative that can assist them. Once the relationship has been established, communicate regularly about pending offers to keep the bank from beginning the process of foreclosure.

If you are a buyer, keep in mind that a home listed as a short sale is not necessarily approved by the bank. The short sale advertisement does not indicate that a bank has approved a sale.

Avoid Foreclosure

November 19, 2009 by  
Filed under Avoid Foreclosure, Blog

How To Avoid Foreclosure?

Well there are a number of ways for homeowners to avoid foreclosure.  I’ve posted several blogs in our archive that shows you exactly how you can do this.  If you want to speak to me personally you can call 323-677-2800, and I will be more than happy to help you.

The government has allocated $400 million which was used to help homeowners avoid foreclosure, by lowering their monthly mortgage payments.    A study has been released stating that borrowers are about 60% more likely to keep their homes if they receive some type of counseling.

Borrowers facing foreclosure are 60% more likely to hold onto their homes if they receive counseling. So here is a simple equation I put together:

Counseling = Stay In Home

Get it?? Then go get some help and avoid foreclosure!!

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In particular i would use Housing Assist of America or the National Foreclosure Mitigation program, these are two institutions that have helped homeowners avoid foreclosure.   More and more homeowners are becoming delinquent on their mortgage payments, and this is not a problem that we are seeing an end to any time soon.  So please take my advice and get some help immediately.  Don’t trust a realtor or attorney, because at the end of the day all they want is your money.

Go get help from a counselor who does not charge anything for their services, and avoid foreclosure today!!

Housing Assist Coldwellbanker