The Obama administration has announced new details under its Foreclosure Alternatives Program (FAP) enabling servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure in cases where the borrower is generally eligible for a Making Home Affordable modification but does not qualify or is unable to successfully complete the three month trial period.  The program, effective through 2012, requires that prior to proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

Incentives in the FAP program include $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; $1,500 for borrowers/homeowners to help with relocation expenses; and up to $1,000 toward the cost of paying junior lien holders to release their liens ($1 from the government for every $2 paid by the investors to the second lien holders).

The FAP includes streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter to minimize complexity and increase use of the short sale option.  Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements, based on an appraisal or one or more broker price opinions, issued no more than 120 days before the date of the short sale agreement.

In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions.  The property also must be listed with a licensed real estate professional with experience in the neighborhood, and no foreclosure may take place during the marketing period, of at least 90 days, as specified in the Short Sale Agreement.

The Short Sale Agreement also must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price.  The servicer must agree not to negotiate a lower commission after an offer has been received.  Servicers may not charge fees to borrowers/homeowners for participating in the program.  Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale agreement, plus any extensions. (Source: CALIFORNIA ASSOCIATION OF REALTORS®)

The Obama administration’s “Making Home Affordable” program is beginning to have an impact.  As of last week, Chase Mortgage, the servicing side of JP Morgan Chase, had modified 15,000 home loans under the program.  Bank of America also has sent out 100,000 letters to borrowers whom could benefit.

Homeowners wanting to receive a mortgage modification should begin by visiting the government Web site, www.makinghomeaffordable.gov.  Once there, borrowers can take a quiz to find out if they are eligible for a mortgage modification under the “Making Home Affordable” program.  At the end of the quiz, based on the answers provided, the site will tell borrowers if they are likely to qualify for a modification under the program.

The site also provides helpful tips about gathering the property paperwork, including pay stubs; tax returns; savings account records; mortgage statements; second mortgage information, such as home-equity loan statements; credit card bills; and information on other debt, including student and car loans.

According to a March report from the NATIONAL ASSOCIATION OF REALTORS® (NAR), 53 percent of all properties sold during March 2009 were purchased by first-time home buyers, an increase from the usual 40 percent or less level.

In addition to favorable home prices in most areas, federal tax credits for first-time home buyers are motivating many “fence sitters” to enter the market.  NAR estimates that tax credits could motivate as many as 300,000 first-timers to purchase homes this year.

Most lenders currently require down payments of 20 percent or more.  The upside of making a larger down payment is that the borrower owes less money and usually receives better terms on the mortgage.  If the down payment is less than 20 percent, most lenders require the borrower to take out mortgage insurance, which could cost $100 or more a month, depending on the nature of the loan.

Borrowers can find out the down payment required by the lender as part of the pre-approval process.  The pre-approval process is typically a free service where a lender evaluates the borrowers’ financial situation and determines the terms of the loan it is willing to offer.  Most housing experts recommend that borrowers get pre-approved prior to house hunting.