Short Sales and Future Borrowing Capacity, Financial Vocabulary, and Feeling Mavericky!

“A government that is big enough to give you all you want is big enough to take it all away.” ~Barry Goldwater


FNMA Updates the Future Eligibility of Borrowers After a Pre-Foreclosure Event

In an April 14, 2010 Selling Guide Update, FNMA reports, “To support overall market stability and reinforce the importance of borrowers working with their servicers when they have difficulty repaying their debt, FNMA is updating policies regarding the future eligibility of borrowers to obtain a new mortgage loan after experiencing a preforeclosure event.” A preforeclosure event is defined as a preforeclosure sale, short sale, or deed-in-lieu of foreclosure.

As of July 1, 2010 all loans sold to FNMA must document that the borrower has met the minimum required waiting period to be eligible for a mortgage loan after a preforeclosure event. The waiting period commences on the completion date of the preforeclosure event, and will vary based on the maximum allowable LTV and CLTV ratios and occupancy of the property.

Preforeclosure Event        Waiting Period for New FNMA Loan
Preforeclosure Sale            80% LTV – 2 Years
Short Sale                         90% LTV – 4 Years
Deed in Lieu                     Maximum LTVs per Loan Product – 7 Years

Preforeclosure Event
w/Extenuating
Circumstances*                   Waiting Period for New FNMA Loan
Preforeclosure Sale           90% Maximum LTV – 2 Years
Short Sale
Deed in Lieu

* Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. If a borrower claims that the event is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.). The lender must also obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

Speaking Financial
When you turn on the news…admit it you still watch the news…do you feel like you must have been missed that day in school when they taught Economics and the Financial Markets? More and more often so many of the stories require a dictionary to understand, so I thought I would give you a down and dirty guide to recent terms you may have heard relating to the financial industry so you will be able to impress your friends (or more importantly understand your friends) in your next cocktail party conversation.

Derivatives: An asset that derives its value from another asset, also known as the “underlying’ asset. A derivative is a financial instrument or in simple terms, an agreement between two people or two parties, that has a value determined by the future price of something else. Think of a derivative as a bet on the price of something. For example, you might bet your friend on the price of a gallon of gasoline. If the price in one year is less than $3.00 a gallon, your friend must pay you $1. If the price is more than $3.00 a gallon, you must pay your friend $1. Therefore, the underlying in the agreement is the price of a gallon of gas and the value of the agreement to you depends on that underlying.

Hedge: A position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk. The market values of crude oil fluctuates constantly as supply and demand for it varies. If you ran an small commercial airline and knew that the price you must charge for your flights were based upon the price of jet fuel, so you forecast what the price will be in the future. If the price of jet fuel drops, you stand to make a lot of unexpected money, but if the actual price increases, you could be ruined. Airlines use “futures contracts” and “derivatives” to “hedge” their exposure to the price of fuel. The futures contract is an agreement to buy certain crude oil at a certain date in the future for a certain fixed price. You have “hedged” your exposure to gasoline prices; thus you no longer care whether the current price rises or falls, because you have a guaranteed a price in the contract. Airlines know that they must purchase jet fuel for as long as they want to stay in business, and fuel prices are notoriously volatile. By using crude oil futures contracts to “hedge” their fuel requirements Southwest Airlines was able to save a large amount of money when buying fuel as compared to rival airlines when fuel prices in the US rose dramatically after the 2003 Iraq war and Hurricane Katrina.

The Wonderful World of Politics

I’m back from DC and learned a lot. We even had the chance to meet with the Maverick himself. Read the details of my trip by subscribing to my blog www.amyswaneycmb.blogspot.com.

A man was walking down the streets of Washington DC one night. All of a sudden a mugger sticks a gun in his ribs and says. Give me all your money.
He replied, "Do you realize I am an important member of congress?"
The robber said, "In that case give me all MY money!

I want to be the lender of choice for your customers so if I can be of assistance to you or your clients, please feel free to contact me at amy@amyswaney.com