Under the HOPE for Homeowners Program, 400,000 distressed homeowners can pay off their troubled mortgages and replace them with more affordable, FHA-insured loans. To qualify, a borrower’s monthly payment on existing mortgage loans must be over 31% of his or her income as of March 1, 2008 (hence demonstrating the borrower’s inability to afford the original loans). The original loans must have been originated before 2008, and secured by the borrower’s principal residence (as well as only residence). Also to qualify, the borrower must satisfy FHA underwriting requirements for the new FHA-insured refinance loan.
    

 The FHA refinance will be a fixed rate loan up to $550,400 for at least 30 years, and will include charges for FHA insurance premiums. The maximum loan-to-value ratio of the FHA refinance is 90% of the appraised value. If the refinance proceeds are insufficient to pay off the existing liens, the refinance will not go through unless the original lenders voluntarily agree to accept a short payoff as payment in full. Rules will be established to allow, among other things, equity sharing for the original junior lienholders.
    

 Upon obtaining the FHA refinance, the borrower must share with the FHA at least 50% of any equity realized through a subsequent sale or refinance. The FHA’s share in equity will be based on a sliding scale of 100% of any equity realized within the first year of the FHA loan, 90% the second year, and so on, but not less than 50%. The HOPE for Homeowners Program shall be in effect from October 1, 2008 to September 30, 2011.

This article was sent to me today and I wanted to bring it to your attention. I have had a few experiences with Short Sales this last year and many of these points ring true. If your interested in learning more about the short sale market or would like to get a list of short sale homes sent to you please give me a call.

Washington Post Article Launched: 07/06/2008 12:11:28 AM PDT

By Elizabeth Razzi

Here’s what’s really happening with short sales: All too often, they fall short of the finish line.

A short sale means a sale that falls short of the amount owed on the mortgage. They happen only when the seller can’t come up with the cash to pay off the difference. Most important, though, is that they can happen only when the lender agrees to accept the shrunken payoff. Desperate sellers pursue them to avoid a foreclosure, which would be even more damaging to their credit history. Buyers pursue them in hope of snagging a home at a deep discount. Before you waste your time, and possibly your money, on a short sale that stands little chance of getting the bank’s approval, gather some intelligence about the sellers, their financial situation and the real estate agent they have hired. You will save a lot of frustration by focusing only on deals the bank is willing to make. Lenders aren’t in the business of accepting less than they are owed, and their paperwork machinery isn’t even set up to work that way efficiently. Their approval of a short sale is always slow in coming — if it ever comes at all. You need to find out if the bank even has a clue that the seller is trying for such a deal. Too often, sellers and their agents are calling a listing a “short sale” or saying that “offers are subject to third-party review” without even having talked with the lender. They plan to get a live fish on the hook before they try to tempt the lender. Do you want to be that fish?

It’s important to distinguish between “upside-down” sellers and short sales. If sellers are upside-down on their loan, owing more than the home is worth, they are still expected to make monthly payments. Even if they would like to move, most upside-down owners are stuck until prices recover enough to make a sale profitable.

If an upside-down owner must sell, even at the reduced price, he’s expected to take money out of savings, cash in the 401(k), borrow from the in-laws or otherwise pay off the mortgage. But what happens when the homeowner simply cannot come up with the cash? At this point, the homeowner’s pain becomes the lender’s problem. The lender’s options are either to agree to a short sale and forgive the unpaid debt, or to foreclose on the home and resell it. Remember, the lender gets to make that choice, not the seller.

There are lots of things that can derail a short sale. For example, although lenders lose a lot of money when they foreclose, the payout from private mortgage insurance could reduce that loss enough to make the lender choose foreclosure. Lenders holding second mortgages, such as home-equity lines of credit, can also kill the sale. Second-mortgage lenders are supposed to be at the back of the line to collect loan payoffs, but they can nix a proposed short sale if they don’t think they’re getting enough out of it.

Frank Borges LLosa, who owns the Frankly Realty brokerage in Arlington, Va., has analyzed multiple-listing service data for Northern Virginia, and estimates that of every 20 short-sale listings that draw a contract from a buyer, only one actually makes it to closing. “I call them fake listings,” he said. If you try to buy a home through a short sale, be prepared for the deal to fall apart. Don’t spend money on appraisals or inspections until you have received some sort of commitment from the bank. You certainly don’t want to give notice to your landlord too early. And keep looking for other, easier deals, just in case.

When you optimistically took out your loan to buy your home, it is likely you were thinking the market would continue on the skyrocket incline that was true well into 2005 in San Jose and the South Bay, as well as much of the state of California. Downtown San Jose condominiums provided a great investment opportunity, as did nearly every single family residence. Then you may find yourself in a bind. Many variable-rate interest loans bumped up in 2007 and will continue to bump up in 2008. In fact, loan payments may double as homeowners come to terms with interest rate increases.

Then the market in downtown San Jose, Santa Clara County and surrounding communities begn to experience sluggish action and less of a seller’s market environment. In some cases, sellers fall behind on mortgage payments. Home sellers do not have to foreclose. You can make specific, tailored arrangements with your lender to sell the home for the present market value. The bank will take a loss but you will be released from the weight of the loans. And you do not have to experience a foreclosure or a bankruptcy.

A short sale is when the amount of the loan is higher than the market value of the home. The true market value is defined as the amount someone is willing to pay for your home right now. It’s not what you would like to receive, or what your neighbors received for their home a few months ago. The true market value is not actually known until your home is on the market and valid offers arrive!

Your realtor may prove of great help to you during this process of selling for less than you owe on your home. Your realtor will step up and apply for the short sale paperwork with your lender. Then, when you receive an offer, your realtor will run it by the bank for approval. The major difference in a short sale scenario is that the seller doesn’t control exactly the terms of the home sale. The offer must go to the bank for a green light to sell your home. The advantages are many! You are released from your home loan debt. You are released from further marks on your credit. You do not have to declare bankruptcy or go through a foreclosure. The hard part to take is that you are not leaving your home with cash to buy your next place. So it is a bittersweet victory. Look to your realtor for assistance through the process.

You see short sales in declining markets. You also see short sales when the home owner has taken a large home equity line on the home, expecting the prices to climb and cover the difference between the home value and the home sale price. In downtown San Jose and surrounding South Bay communities, real estate prices are slightly lower now than any time in the last two years. This is an opportunity for buyers to get a great price on a home or San Jose condominium – because the seller may need to sell and the bank may wish the homeowner sells before going into foreclosure.

For homeowners who are having a lot of trouble paying the mortgage, a short sale provides a tool to sell the home without going into foreclosure or bankruptcy. For example, let’s say an ambitious home buyer in 2006 paid $400,000 for a downtown San Jose condominium. Let’s say the buyer paid for the home all in loan with no cash down. That is an example of 100 percent financing.

Now let’s say that homeowner cannot make the payments, and falls three or four payments behind. To ward off foreclosure, the seller makes an arrangement with the bank. Realtors are helpful for coordinating these efforts. The realtor lists the home for $400,000 and doesn’t get a nibble. Now, the realtor may drop the price to let’s say $378,000. This is a short sale! The sale price is not as high of an amount as the debt on the home. The bank may accept as low as $350,000 or $325,000 as months go by – just to be compensated for some part of that loan. As a buyer, this is a great opportunity to get in and purchase a home for less than market value.

What to look out for: buyers may want to make sure that they are financially prepared to manage the full mortgage payments for the foreseeable future. Buyers may opt for a 30-year-fixed loan opportunity to lock in the home payment well into the future. The safest way to buy in a declining market is with 10 percent to 20 percent down payment – because this will protect you from going into a short sale yourself in the future! Good luck home shopping. It is a great time to invest in San Jose condominiums, single family homes, or multi-family residential units. Rents are remaining constant and prices are dropping. Short sales are a great way to get in the door.