We’ve posted an article regarding the Housing and Economic Recovery Act of 2008 in the October 2008 issue of our online magazine, the first tuesday journal online. In the article, we digest the changes the act will effect, and also provide a link to the HOPE for HOMEOWNERs site. Our article can be found here.
A brokerage fee suggestion: the chances of an agent earning a fee on a short-sale listing just doubled. Homeowners in foreclosure would just as soon stay in the home as sell it – that is, if they are told their agent could reduce their loan amount and make their loan payments affordable again.
Congress authorized the Federal Housing Administration (FHA) to bail out both homeowners and existing lenders when the loan is in default. Both must be willing to negotiate. Thus, the risk of not locating a buyer and not earning a fee has been reduced on a short-sale listing. It may not be full employment, but it is better employment.
The listing agent’s contact with the lender’s loss mitigation department to determine the payoff demand on a future short sale now also includes asking about a pre-foreclosure workout as an FHA 257 loan cram down to refinance the owner. Thus, the agent acts as both a listing agent and a loan broker.
For the homeowner, the loan is reduced to 90% of the home’s current value, amortized at the current fixed rate over 30 years. Payments are no more than the owner can afford. Here, the agent creates a 10% equity where none currently exists. However, the owner must agree to share his equity and appreciation 50:50 with the FHA should he sell it after five years; more if sooner.
In exchange, the lender gets immediate FHA insurance against any future loss: the equivalent of cash. The lender pays the private mortgage insurance and a brokerage fee as part of the 90% loan amount. In a market of declining prices, that’s a bail out for the lender.
The agent listing a home for a short sale and agreeing to pursue the FHA 257 cram-down refinancing must also enter into a loan broker listing agreement with the owner. They will earn a fee at a percentage of the appraised value of the home for initiating and assisting in restructuring the loan. There are no out-of-pocket expenses for the homeowner thanks to Congress and an agent willing to locate and talk to the lender. Additionally, there is no Real Estate Settlement Procedures Act (RESPA) referral fee problem since no sale is coupled with the loan.
Great stuff, if the dual negotiations with the lender regarding both the discount on a future short sale and the 90% cram-down refinancing are more likely to produce a fee than the single role of listing a property in foreclosure for sale.