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Introduction to
  Short Sales for the
Real Estate Professional

         2008
Tools and Tips
                   Close all other applications to enhance your workstation’s performance.
                ...
Objectives
      We want to discuss:
            Our mission to homeowners and the neighborhoods
            in which they...
Mission
   Freddie Mac is dedicated to:
         Supporting its servicers’ early intervention efforts to help
         mor...
No Contact question
 What percentage of loans are placed into the
 foreclosure process without any personal contact
 being...
No Contact question
 What percentage of loans are placed into the
 foreclosure process without any personal contact
 being...
Background

          Loan modifications have been the workout of
          choice for the last several years
          As...
Background
               It’s becoming more difficult to negotiate short
               sales due to the frequency and si...
Key Statistics
   Delinquent Loan Inventory
          30 days delinquent at record number
          90 days or greater con...
Key Statistics
  Data
           Completing high number of workouts a year
           75% of Loan Modifications ‘cure’ for...
Workout Options
       Retention:
                Full or partial reinstatement
                Short-term or long-term fo...
Workout Options
      Liquidation:
                Full payoff
                Make whole preforeclosure sale
            ...
What Is a Short Sale?
A short sale occurs when the net proceeds from the sale of a
property are insufficient to pay off th...
Parties in Typical Real Estate
                     Transactions

                              Agents




               ...
Parties in a Short Sale
                                           Agents




                                Loan        ...
Short Sale Process
                              Servicer
         Servicer                                Servicer       ...
Who Benefits from a Short Sale?




                               Source – “Effective Short Sale Workouts”– Genworth Fina...
Who Benefits From a Short Sale?



      •     Satisfies the debt for less than the full
            amount
      •     Av...
Who Benefits From a Short Sale?



      •     Potentially reduces losses over the
            insured amount
      •     ...
Who Benefits From a Short Sale?



      •     Enhances relationships with buyers and sellers
      •     Increases Listin...
Who Benefits From a Short Sale?



      •     Enhances relationships with Investors
      •     Avoids an REO on a portfo...
Who Benefits From a Short Sale?




      •     Reduces claim losses
      •     Avoids an REO and the expenses
          ...
Who Benefits From a Short Sale?



      •     Keeps housing values from depreciating
      •     Allows existing homeowne...
Short Sale Preparation
Pre-listing interview with homeowner/
seller
         Does homeowner really want/need to
         s...
Short Sale Preparation
      Time is of the essence
      Start with first lien
      Communicate with junior lien holder(...
Base Documents for a Short Sale
    General workout documentation
            Hardship letter
            Seller’s financi...
Short Sale Requirements
       Interior broker’s price opinion (BPO) with the 90-day
       “as is” marketing timeframe
  ...
Freddie Mac Specifics
            Have seller ask servicer if investor is Freddie
            Mac
            More delegat...
Short Sale Hurdles
            Inform seller of financial participation in the
            usual seller’s closing costs
  ...
Short Sale Hurdles

        Know who the owner (Investor) of the loan is
        Present market value offers
        Negot...
Short Sale Hurdles
         Buyer on HUD-1 must be same as buyer on
         approval letter
         Seller receives no c...
Certified True Final question
      Who certifies that the HUD-1 is a “certified true
      final”?
         a) Servicer
 ...
Certified True Final question
      Who certifies that the HUD-1 is a “certified true
      final”?
         a) Servicer
 ...
Short Sale Hurdles
         Promissory notes must be prepared by Freddie
         Mac
         Executed promissory note mu...
Resources
          Reinforce short sale as a workout option with servicers
          Continue to educate homeowners to av...
Resources

 http://www.FreddieMac.com/corporate/buyown
   /english/avoiding_foreclosure/index.html


 http://www.FreddieMa...
Recap
     We discussed:
              Our mission to homeowners and the neighborhood in which
              they live
   ...
Questions
          Training
          Wayne Ferguson
          National Trainer
          (571) 382–5214
          Wayne_...
Thank you for your
                            participation!




Freddie Mac – September                         39
     ...
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Fanniemae Shortsale for REALTORS®

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Fanniemae has produced the PowerPoint for agents to get an overview of their role in the process. You can find it on Matthew Rathbun webpage www.TheAgentTrainer.com

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Fanniemae Shortsale for REALTORS®

  1. 1. Introduction to Short Sales for the Real Estate Professional 2008
  2. 2. Tools and Tips Close all other applications to enhance your workstation’s performance. Maximize the window used for viewing this recording. For technical Support, call (866) 229-3239 Visit our Learning Center to view other distance learning offerings www.freddiemac.com/learn Freddie Mac – September 2 CONFIDENTIAL 2008
  3. 3. Objectives We want to discuss: Our mission to homeowners and the neighborhoods in which they live Background and key statistics on delinquencies and workouts Real Estate Professional’s perspective on current environment Retention and Liquidation Workout Options Short sales Freddie Mac – September 3 CONFIDENTIAL 2008
  4. 4. Mission Freddie Mac is dedicated to: Supporting its servicers’ early intervention efforts to help more borrowers stay in homes they can afford and want to keep Avoiding foreclosure when homeownership retention is not possible Reducing credit losses while maintaining neighborhood values Reducing the percentage of borrowers who go to foreclosure without ever making contact with their servicer Freddie Mac – September 4 CONFIDENTIAL 2008
  5. 5. No Contact question What percentage of loans are placed into the foreclosure process without any personal contact being made with the borrower? a) 5% b) 6% c) 10% d) 50% Freddie Mac – September 5 CONFIDENTIAL 2008
  6. 6. No Contact question What percentage of loans are placed into the foreclosure process without any personal contact being made with the borrower? a) 5% b) 6% c) 10% d) 50% Freddie Mac – September 6 CONFIDENTIAL 2008
  7. 7. Background Loan modifications have been the workout of choice for the last several years As property values decrease, there will likely be an increase in the number of short sales which will keep REO inventories down and preserve neighborhoods Freddie Mac – September 7 CONFIDENTIAL 2008
  8. 8. Background It’s becoming more difficult to negotiate short sales due to the frequency and size of junior liens Many real estate professionals are new to the short sale experience As short sales increase, the default servicing industry must re-develop relationships with all parties Freddie Mac – September 8 CONFIDENTIAL 2008
  9. 9. Key Statistics Delinquent Loan Inventory 30 days delinquent at record number 90 days or greater continue to grow Foreclosure sales at all time high Environment House prices/valuation falling in many areas of the US Housing stock with high inventory Tighter Credit Market makes it harder to finance Freddie Mac – September 9 CONFIDENTIAL 2008
  10. 10. Key Statistics Data Completing high number of workouts a year 75% of Loan Modifications ‘cure’ for good 70% of late stage repayment plans fail versus 40% of early stage Servicers report that less than a 50% contact rate with borrowers that went to foreclosure sale Roper survey showed the majority of borrowers do not contact their Servicers, but are willing to talk to a financial counselor. Freddie Mac – September 10 CONFIDENTIAL 2008
  11. 11. Workout Options Retention: Full or partial reinstatement Short-term or long-term forbearance Repayment plan Loan modification FHA partial claim / MI claim advance Freddie Mac – September 11 CONFIDENTIAL 2008
  12. 12. Workout Options Liquidation: Full payoff Make whole preforeclosure sale Short sale Deed in lieu of foreclosure Delinquent loan assumption Freddie Mac – September 12 CONFIDENTIAL 2008
  13. 13. What Is a Short Sale? A short sale occurs when the net proceeds from the sale of a property are insufficient to pay off the first lien Property value - $150,000 Total amount due on first lien $178,000 Sales price - $148,000 (99% of value) 6% Commission and closing costs ($ 13,000) (9% of sales price) Less funds from homeowner for cc $ 1,000 Payment to $20K lienholder ($ 2,000) Net proceeds - $134,000 (90% of value) Shortage/loss - ($44,000) 20% MI Claim (100% of claim) $35,600 Shortage/loss ($ 8,400) Freddie Mac – September 13 CONFIDENTIAL 2008
  14. 14. Parties in Typical Real Estate Transactions Agents Buyer’s Seller Buyer Lender Source – Effective Short Sale Workouts, Genworth Financial, Inc. Freddie Mac – September 14 CONFIDENTIAL 2008
  15. 15. Parties in a Short Sale Agents Loan Mortgage Mortgage Seller Buyer Servicer Investor Insurer Housing Counselor Pool Primary Junior Lienholders HOA Buyer’s Liens Lender Source – Effective Short Sale Workouts, Genworth Financial , Inc Freddie Mac – September 15 CONFIDENTIAL 2008
  16. 16. Short Sale Process Servicer Servicer Servicer Qualified If required, determines if reviews short negotiates any Short Sale investor and/or investor and/or sale package participation approved by all MI company the MI company required from the required parties each review approval borrower required Short sale closes Seller contributes to minimize the loss based on ability Seller avoids foreclosure The investor and the MI company minimize losses Real Estate Professional closes an additional sale Neighborhood avoids the stigma of foreclosure Source – “Effective Short Sale Workouts” Genworth Financial, Inc Freddie Mac – September 16 CONFIDENTIAL 2008
  17. 17. Who Benefits from a Short Sale? Source – “Effective Short Sale Workouts”– Genworth Financial, Inc Freddie Mac – September 17 CONFIDENTIAL 2008
  18. 18. Who Benefits From a Short Sale? • Satisfies the debt for less than the full amount • Avoids a foreclosure on his or her credit record • Avoids the pursuit of a deficiency or a deficiency judgment • May avoid reporting of discharged debt to the IRS Source – “Effective Short Sale Workouts” – Genworth Financial, Inc Freddie Mac – September 18 CONFIDENTIAL 2008
  19. 19. Who Benefits From a Short Sale? • Potentially reduces losses over the insured amount • Avoids an REO and the expenses incurred Source – “Effective Short Sale Workouts”– Genworth Financial, Inc Freddie Mac – September 19 CONFIDENTIAL 2008
  20. 20. Who Benefits From a Short Sale? • Enhances relationships with buyers and sellers • Increases Listings • Increases Sales Source – “Effective Short Sale Workouts” – Genworth Financial, Inc Freddie Mac – September 20 CONFIDENTIAL 2008
  21. 21. Who Benefits From a Short Sale? • Enhances relationships with Investors • Avoids an REO on a portfolio loan • Potential investor incentives for completed Short Sales • Avoids expensive servicing costs incurred on delinquent loans • Enhances goodwill for future business Source – “Effective Short Sale Workouts” – Genworth Financial, Inc Freddie Mac – September 21 CONFIDENTIAL 2008
  22. 22. Who Benefits From a Short Sale? • Reduces claim losses • Avoids an REO and the expenses incurred Source – “Effective Short Sale Workouts”– Genworth Financial, Inc Freddie Mac – September 22 CONFIDENTIAL 2008
  23. 23. Who Benefits From a Short Sale? • Keeps housing values from depreciating • Allows existing homeowners to keep refinance efforts. Source – “Effective Short Sale Workouts” – Genworth Financial, Inc Freddie Mac – September 23 CONFIDENTIAL 2008
  24. 24. Short Sale Preparation Pre-listing interview with homeowner/ seller Does homeowner really want/need to sell? Discuss Other Workout Options Obtain payoff statement Determine all contingencies at time of listing (subject to investor approval, etc.) Advise the seller that their financial participation in the sale is requested Freddie Mac – September 24 CONFIDENTIAL 2008
  25. 25. Short Sale Preparation Time is of the essence Start with first lien Communicate with junior lien holder(s) and know their payoff requirements What is required by the seller’s servicer (loss mitigation department) See workout documentation Freddie Mac – September 25 CONFIDENTIAL 2008
  26. 26. Base Documents for a Short Sale General workout documentation Hardship letter Seller’s financial statement (BFS 1126) Recent pay stub or P&L/tax return if self employed Complete sales contract signed by all parties Estimated seller’s closing costs or estimated HUD-1 Buyer pre-approval letter Bank Statements (not required but helpful) Credit Report Freddie Mac – September 26 CONFIDENTIAL 2008
  27. 27. Short Sale Requirements Interior broker’s price opinion (BPO) with the 90-day “as is” marketing timeframe Sale is always “as is” Will accept more recent comps to support current value Net proceeds required Percentage of interior BPO value Closing costs and commissions Includes any payment to junior lienholders Seller’s financial participation in the transaction based on ability Freddie Mac – September 27 CONFIDENTIAL 2008
  28. 28. Freddie Mac Specifics Have seller ask servicer if investor is Freddie Mac More delegation to seller’s servicer Enhanced Short Payoff Program Willing to look at deals that make sense Freddie Mac – September 28 CONFIDENTIAL 2008
  29. 29. Short Sale Hurdles Inform seller of financial participation in the usual seller’s closing costs Have better or recent comps available Get buyers pre-approved through reputable lenders Must be arms length transaction – notarized affidavit if unclear Freddie Mac – September 29 CONFIDENTIAL 2008
  30. 30. Short Sale Hurdles Know who the owner (Investor) of the loan is Present market value offers Negotiations with all junior lien holders Clear, easy to read documentation Freddie Mac – September 30 CONFIDENTIAL 2008
  31. 31. Short Sale Hurdles Buyer on HUD-1 must be same as buyer on approval letter Seller receives no commission or proceeds from sale Include Power Of Attorney when sending HUD-1 to servicer HUD-1 must be “certified true final” Freddie Mac – September 31 CONFIDENTIAL 2008
  32. 32. Certified True Final question Who certifies that the HUD-1 is a “certified true final”? a) Servicer b) Closing Agent c) Real Estate Agent d) Investor Freddie Mac – September 32 CONFIDENTIAL 2008
  33. 33. Certified True Final question Who certifies that the HUD-1 is a “certified true final”? a) Servicer b) Closing Agent c) Real Estate Agent d) Investor Freddie Mac – September 33 CONFIDENTIAL 2008
  34. 34. Short Sale Hurdles Promissory notes must be prepared by Freddie Mac Executed promissory note must accompany HUD-1 Do not reduce seller cash contribution Changes on HUD-1 to contract sales price or of buyer not pre-approved will negate the short sale Freddie Mac – September 34 CONFIDENTIAL 2008
  35. 35. Resources Reinforce short sale as a workout option with servicers Continue to educate homeowners to avoid foreclosure Retention options Liquidation options Train and educate real estate professional Webinar Conference Online reference material Freddie Mac – September 35 CONFIDENTIAL 2008
  36. 36. Resources http://www.FreddieMac.com/corporate/buyown /english/avoiding_foreclosure/index.html http://www.FreddieMac.com/corporate/buyown /spanish/avoiding_foreclosure/index.html Freddie Mac – September 36 CONFIDENTIAL 2008
  37. 37. Recap We discussed: Our mission to homeowners and the neighborhood in which they live Background and key statistics on delinquencies and workouts Real Estate Professional’s Perspective on current environment Retention and Liquidation Workout Options Short sales Freddie Mac – September 37 CONFIDENTIAL 2008
  38. 38. Questions Training Wayne Ferguson National Trainer (571) 382–5214 Wayne_Ferguson@FreddieMac.com Loss Mitigation Donna Brandveen Loss Mitigation Manager (703) 918-5144 Donna_Brandveen@FreddieMac.com Freddie Mac – September 38 CONFIDENTIAL 2008
  39. 39. Thank you for your participation! Freddie Mac – September 39 CONFIDENTIAL 2008

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