Homes with 3 bedrooms and only one bath were popular in the 50s and 60s, but now are functionally obsolete; buyers want two bathrooms. Homes with detached, 1 or 1.5 car garages are functionally obsolete; buyers don’t want to walk that far and most have another vechile or “Stuff” for which they need sotrage.

Think about how things have changed in the past 10 years with technology. It was all the rage to have a house pre-wired with multiple phone lines, but how many people have land lines now? And houses with CAT-5 wiring in every room was popular, but outdated now that wi-fi is available.

In real estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank’s loss mitigation or workout department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market and the borrower’s financial situation.

A short sale typically is executed to prevent a home foreclosure, but the decision to proceed with a short sale is predicated on the most economic way for the bank to recover the amount owed on the property. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing as there are carrying costs that are associated with a foreclosure. A bank will typically determine the amount of equity (or lack of), by determining the probable selling price from a Broker Price Opinion BPO or through a valuation of an appraisal. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is typically faster and less expensive than a foreclosure. In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are common in standard business transactions in recognition that creditors are not doing debtors a favor but, rather, engaging in a business transaction when extending credit. When it makes no business sense or is economically not feasible to retain an asset, businesses default on their loans (called bonds). It is not uncommon for business bonds to trade on the after-market for a small fraction of their face value in realization of the likelihood of these future defaults.

Mortgage statements come in many different forms. However, most contain similar terms and information. Here are some commonly used terms and their definitions that may help you better understand your mortgage statement the Making Home Affordable program.

› View a sample mortgage statement

Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability

Integration of Hope for Homeowners to Help Underwater Borrowers
Regain Equity in their Homes

WASHINGTON – The Obama Administration today announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program, including an effort to achieve greater affordability for homeowners by lowering payments on their second mortgages as well as a set of measures to help underwater borrowers stay in their homes.

“With these latest program details, we’re offering even more opportunities for borrowers to make their homes more affordable under the Administration’s housing plan,” said Treasury Secretary Tim Geithner. “Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind.”

“Today’s announcements will make it easier for borrowers to modify or refinance their loans under FHA’s Hope for Homeowners program,” said HUD Secretary Shaun Donovan. “We encourage Congress to enact the necessary legislative changes to make the Hope for Homeowners program an integral part of the Making Home Affordable Program.”

The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.

Separately, the Administration has also announced steps to incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners into Making Home Affordable. Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new FHA-guaranteed loan. Refinancing into a new loan below the home’s market value takes a borrower from a position of being underwater to having equity in their home. By increasing a homeowner’s equity in the home, Hope for Homeowners can produce a better outcome for borrowers who qualify.

Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications. These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program.

Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on February 18. The three part program includes aggressive measures to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will provide new access to refinancing for up to 4 to 5 million homeowners; and a Home Affordable Modification Program, which will reduce monthly payments on existing first lien mortgages for up to 3 to 4 million at-risk homeowners. Two weeks later, the Administration published detailed guidelines for the Home Affordable Modification Program and authorized servicers to begin modifications under the plan immediately. Twelve servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more than75 percent of all loans in the country are now covered by the Making Home Affordable Program.

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The lenders listed below have indicated an interest in refinancing loans under the HOPE for Homeowners program.  When contacting any of the lenders listed below, you are strongly encouraged to contact your servicing lender and any subordinate lien holders since their participation is vital for you to refinance into a HOPE for Homeowners mortgage.  It is important to remember that the HOPE for Homeowners program is voluntary and your servicing lender may offer different solutions for avoiding foreclosure.

When contacting any lender on this list, please use the contact information provided.  Do not give anyone money or pay any fees until you have spoken with your existing lender and know it is participating in the HOPE for Homeowners Program.

If you are experiencing difficulty in communicating with your current servicing lender and/or subordinate lien holders, you may wish to contact a housing counseling agency to ask for advice and assistance in reaching a mutually agreeable solution for avoiding foreclosure.

To view the list of lenders who are participating in the HOPE for Homeowners program click on the link below. Your browser will open a PDF document.

The H4H Lender List was updated on April 24, 2009.

NOTE: Lenders, to remove your company from the list, please contact HopeforHomeowners@hud.gov.

LIST OF H4H PARTICIPATING LENDERS

The program is effective from October 1, 2008 to September 30, 2011.

If you are having trouble making your mortgage payments, HOPE for Homeowners may be able to help you, by refinancing your loan into a new 30-year or 40-year fixed-rate loan with lower payments. Click here for a current list of participating lenders.

NOTE: Homeowners, contact your existing lender and/or a new lender to discuss how you may qualify for the H4H program.

How the Program Works

There are four ways that a distressed homeowner could pursue participation in the HOPE for Homeowners program:

1. Homeowners may contact their existing lender and/or a new lender to discuss how to qualify and their eligibility for this program.
   
2. Servicers working with troubled homeowners may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners loan.
   
3. Originating lenders who are looking for ways to refinance potential customers out from under their high-cost loans and/or who are willing to work with servicers to assist distressed homeowners.
   
4. Counselors who are working with troubled homeowners and their lenders to reach a mutually agreeable solution for avoiding foreclosure.
   

It is envisioned that the primary way homeowners will initially participate in this program is through the servicing lender on their existing mortgage.  Servicers that do not have an underwriting component to their mortgage operations will partner with an FHA-approved lender that does.

Step 1:  Cost-Benefit Analysis

Lender considerations:

Given their fiduciary responsibilities and financial obligations, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to struggling homeowners.

1. Affordability versus value:  lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value.  The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
2. Borrower eligibility:  Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner’s eligibility for the program:

• • The existing mortgage was originated on or before January 1, 2008;
  • Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income for fixed-rate mortgages; For ARMs, the existing mortgage payment(s) exceeds 31 percent of the borrowers gross monthly income as of March 1, 2008 OR the date of the new loan application.
  • The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law; and
  • The homeowner did not provide materially false information (e.g., lied about income) to obtain the mortgage that is being refinanced into the H4H mortgage.

Consumer considerations:

The lender will disclose to the homeowner the benefits of the program:

• Home retention,
• New affordable mortgage based on current appraised value,
• 3.5 percent equity

The lender will also disclose to the homeowner the costs of the program:

• 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,
• Equity and appreciation sharing with the Federal government, and
• Prohibition against new junior liens against the property unless they are directly related to property maintenance.

Step 2:  Negotiations Between Borrowers and Lien Holders

If the lender refinancing the loan does not hold the senior mortgage lien, it will need to secure an agreement from the existing lien holder to waive all prepayment penalties and default fees on the existing loan and accept the loan proceeds from the H4H loan as payment in full.  The loan amount (including the 3 percent UFMIP) for the new H4H loan cannot exceed 96.5 percent of the current appraised value of the property.

The lender will engage existing subordinate mortgage lien holders to extinguish all subordinate liens on the subject property.  To entice subordinate lien holders to participate in the negotiation process and release their liens, FHA has the authority to share its future appreciation entitlement with them or offer an upfront payment option.

Step 3:  Originating an H4H Mortgage

The lender will qualify the homeowner for the new H4H mortgage using the guidelines established under the terms of the program’s unique statutory requirements, ensuring the homeowner has the capacity to make the new payment on the H4H mortgage in a timely manner.

During underwriting of the loan, the lender will calculate the future appreciation interest amount or upfront payment for each subordinate lien holder in accordance with instructions provided by FHA.

At settlement, subordinate lien holders who choose the future appreciation share option will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.

Following funding of the loan the lender will record – in addition to the typical security instrument and note for the first mortgage – a shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM).  These mortgages will be serviced by FHA.

The lender will also submit the new mortgage for insurance to FHA, certifying that it has been originated, underwritten and closed in accordance with the H4H program guidelines.

Step 4:  Fulfilling H4H Mortgage Obligations

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

FHA will provide instructions to the settlement agents regarding subordinate lien holders who are entitled to a portion of any appreciation.  The lien holder that previously held the highest priority will receive payment up to the full dollar amount of its interest, not to exceed the amount of available appreciation, and so on, until all prior lien holders are satisfied or the amount of available appreciation is exhausted.  All remaining appreciation is remitted to FHA.

In instances where the homeowner failed to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgage.

Click here for video

For more information on the requirements and guidelines for each program you can read The Making Home Affordable Program - Frequently Asked Questions document prepared by the Obama Adminstration. This FAQ offers clear answers to many of the questions borrowers have had since the program was launched earlier this year.

For more information on the requirements and guidelines for each program you can read The Making Home Affordable Program - Frequently Asked Questions document prepared by the Obama Adminstration. This FAQ offers clear answers to many of the questions borrowers have had since the program was launched earlier this year.

• The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

Click here to watch Tax Credit FAQ video.