What’s Loan Product Got To Do With ShortSales and Loan Mods?

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Quite a bit, actually.  Loan product can refer to several things, FHA, VA, Fannie, Subprime, Adjustable Rate, Negative Am, credit line, etc.

Each loan product has specific guidelines as to what can be done for shortsales and loan modificatons.  Make this a standard question that you ask your clients when you first meet (and then confirm the info… I recently had a client tell me his loan was VA, but when I called the VA office, they said it was not).  Once you know some details, it will better guide you in the options your client has.

FIRST AND FOREMOST:  If your customer wants to keep their house, AND financially they are able to do so now (or could with a small interest rate reduction) then talk to them about a modification… yes, you will not get your 3% commission, but you will get them in the future and EVERYONE they know as a referral because you helped them out of a problem.

I say small rate reduction because it needs to be within reason.  If your seller has a $3,000/month payment, it’s not likely that the lender is going to reduce their payment to $600 (although that would be nice!).  The biggest success in modifications is where the current loan is an ARM and the lender can convert it to a fixed rate, although I am now seeing many fixed rates get reduced too (often these are just for a 5 year period).

DO NOT let your customer agree to a payment arrangement that they can’t fulfill!  One of my clients recently came in to Tim’s office and said his lender was going to lower his payment by $100 for 6 months and at the end of 6 months he would have to pay $8,000 in a single payment to make up for what he is past due!  Come on, if he was having a hard time with the monthly payments, where’s he going to come up with $8,000 in a few months?  All that type of arrangement is doing is delaying the inevitable… if your seller can’t comply with the terms, they shouldn’t agree to it to start with. (by the way, after leaving our conversation, he called his lender back, told them that was unacceptable and they are now working on a real modification for him).

Now, on to short sales… if your client cannot afford the home any longer or needs to leave the area, then short sale is their next best option (yes, better than a deed in lieu as far as future credit goes).
Knowing the loan product can help you in several ways:

1st, if it is a Fannie Mae loan, your commissions will not be cut below 6%.  Yayyy!  They MAY even approve higher, give it a try!  It’s nice to know that you’re not going to do 10 times the work for less pay.  This also allows you to prepare a HUD that you know is somewher close to reality. (to find out if it is a Fannie Mae loan, go to the Fannie Mae Loan Lookup Site)

2nd, if it is an FHA or VA loan, the loss mitigation guidelines are posted on FHA and VA’s websites… not a big secret! (actually, so are most of FannieMaes, it’s called the Seller-Servicer Guide… go on, google it!)

3rd, just KNOWING this info will make both your seller AND the other real estate agent have w-a-y more confidence in your ability and knowledge level.  One of the challenges with short sales is that EVERYONE is an expert, even those who have never closed a single one!  It actually creates animosity between agents when one is clueless about the process yet pretends to know what they’re doing.

Right now I hear a lot of agents complaining that REO’s are hard to break into because you have to have experience before you can get listings and the only way to get experience is to work for someone already doing them… I think this would be a great model for shortsales!  You have to apprentice under an experienced short sale agent for at least 5 transactions before you’re allowed to take one as a listing yourself.  What do you think?

Today I’ve just been able to scratch the surface, but don’t worry, there’s more to come!
Andy

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