Friday, June 25, 2010

Year of the Short Sale, and Deed in lieu

by Bill McBride on 6/25/2010 09:45:00 PM

From Kenneth Harney in the WaPo: Foreclosure alternative gaining favor (ht ghostfaceinvestah)

There are two programs in Home Affordable Foreclosure Alternatives (HAFA), short sales and deed in lieu of foreclosure.

Harney writes:

Some of the largest mortgage servicers and lenders in the country are gearing up campaigns to reach out to carefully targeted borrowers with cash incentives that sometimes range into five figures, plus a simple message: Let's bypass the time-consuming hassles of short sales and foreclosures. Just deed us the title to your underwater home, and we'll call it a deal. ...
The deal can be quick, and the first lender will agree not to pursue a deficiency judgment. However 2nds are a problem, and "deed in lieu" transactions still hit the borrower's credit history.

Borrowers with 2nds considering a "deed in lieu" transaction should contact the 2nd lien holders. HAFA offers a payout to 2nd lien holders in deed in lieu transactions who agree to release borrowers from debt (see point 4 here for payouts under deed in lieu).

Under the HAFA deed in lieu program, the borrower needs to be proactive with 2nd lien holders.

The deed in lieu program is gaining in popularity, from Harney:
Bank of America, has mailed 100,000 deed-in-lieu solicitations to customers in the past 60 days, and its volume of completed transactions is breaking company records, according to officials. ... To sweeten the pot, Bank of America is offering cash incentives that range from $3,000 to $15,000 ... [Matt Vernon, Bank of America's top short sale and deed-in-lieu executive] said.
On the credit impact, from Carolyn Said at the San Francisco Chronicle:
[Craig Watts, a spokesman for FICO] said it is a "widespread myth" that short sales and deeds in lieu of foreclosure have less impact on credit scores than do foreclosures.

"Generally speaking, when you can't pay your mortgage, in the eyes of the FICO score what matters is that you were not able to fill your obligation as you originally agreed and that failure is highly predictive of future risk," he said.
And a video from HAMP / HAFA: "Your Graceful Exit"