Tips for a Successful short sale 4-13-2012

Short Sales are unfortunately a way of life these days, especially if you work in the “problem states” like trying to make Florida Mortgage Loans. I have seen a “huge” resurgence and I thought back in 2009 that they would be long gone by 2012. I was wrong again.

Short sales are not quite as difficult as they were in the early days of our housing recession as most of the Banks have departments set up to handle this process. It still is very inefficient and they often do not play fair. As a Florida Mortgage Lender, I handle many of these transactions every month. The sad part is that many transactions of this nature never close because the parties involved do not take the necessary precautions. I would like to offer advice I have cultivated over the past few years so you can get as many Short Sales to the closing table.

The first thing to understand is that even though, taking the short sale is the best option for the Bank, they too often do not get it and either through incompetence or inefficiency get in their own way. I have seen situations where we supply the necessary income information to the Bank and they take over 30 days to review them. Then they call and request updated income Docs!

Another thing to keep in mind: You have nothing unless it is in writing. Until you have a short sale approval in your hand you have nothing. The same holds for extensions. I had a case where the Realtor was told they had a short sale extension; we got the loan ready to close only to find out the property was sold on the courthouse steps the day before. OUCH!

Here are a 9 tips to keep in mind:

1. Before you write the contract. Look to see if there have been any recent title transfers. If the seller has been in Title less than 90 days before the date of contract you may have a problem. Even though FHA has relaxed the 90 day flipping rule, most banks are either not relaxing it or have special rules that often kill the deal.

2. Has a BPO been ordered?

3. Did the seller complete the hardship package?

4. When was the last time you spoke to the asset manager who was assigned to the short sale?

5. Has the asset manager assigned to the short sale approved the “hardship” by the seller?

6. Has the “Estoppel Letter” been ordered? There could be $10,000 in past due HOA fees that will need to factored in

7. Have the title processor provide you with the short sale approval letter, not verbal.

8. Ask if the sellers are getting divorced. If this is the case it could complicate matters

9. Ask if there are any unpaid code enforcement violations, delinquent HOA fees, water bills, electric bills. If there are, make sure they were presented to the Bank or they may not agree to cover them. Remember, the seller is not going to pay anything. If there is a shortage, they will be after your commission


FHA v Conventional...who has the edge? 4-1-2012

I've been getting calls recently from Realtors asking if the buyer has to do an FHA loan. More and more listings are now stating “Only conventional offers” and I wanted to let you know when a Conventional loan might be better than an FHA loan and vice-versa.

Appraisal: If an FHA appraisal has been done and the value has come in loan then the FHA case# runs with the property for at least 6 months. So if you have a listing then the thought maybe to only take conventional offers to see if a higher value comes in since Conventional appraisals aren’t registered unlike FHA. Also FHA requires that the electrical and plumbing to be functioning at the time of the appraisal and on a conventional loan this isn’t the case. Advantage: Conventional

Income: On a Conventional loan Fannie Mae & Freddie Mac just “re-tweaked” their debt to income ratio’s tolerances and the outcome is brutal. I tried running a file this week through Fannie Mae’s automated approval engine “DU” and it referred a file with a back ratio of 46% and the borrower was putting 25% down and had a credit score of 788. On an FHA loan I can still go to a back end ratio of 57%. Advantage: FHA

Assets: FHA still allows a gift of 3.5% and the gift just has to be sourced via wire transfer documentation from the title company. If it’s done that way then I don’t have to verify the donor’s ability to gift the funds. Conventional still requires that the borrower have 5% of their own funds before allowing for any gift funds. Conventional also requires about 2 months of mortgage payment reserves and FHA requires 0. Advantage: FHA

Credit: As of April 1, 2012 a borrower applying for an FHA loan cannot have more than $1,000 in collections/charges off/ car repo’s on his/her credit report and still get approved for an FHA loan. This is a HUGE change as I have a borrower right now who is looking for a home and has a 685 credit score but he had a car repo from 2007 for $5,200 so he has to pay that at or before closing. He pays all of his other bills on time but this one blemish will stop him from closing. Conventional will allow you to close with an unpaid charge off or collection greater than $1,000 as long as I get an automated approval. I never thought that FHA would have tougher underwriting guideline than Conventional but it’s true as of April 1st ( I wish it were an April fool’s joke) Advantage: Conventional

Rate & Mortgage Insurance: Conventional loans don’t have up front mortgage insurance and FHA does and Conventional loans have less expensive monthly mortgage insurance than FHA but….If I’m trying to get a borrower the best rate on a loan with 5% down and they have a 642 credit score than the rate on FHA is lower (when adjusted for mortgage insurance) v conventional. This analysis only changes once the borrower has a credit score over 720 because of all the Fannie & Freddie price hits for credit scores and loan to value. Advantage: FHA

So if you borrower has less than 10% down FHA is better l but over 10% down than Conventional should be less expensive than going FHA.