I keep running into short-sale with loans that have Mortgage Insurance (M.I.). More often than not the Seller is aware of the mortgage insurance that they are paying. The general rule of thumb is a home purchase with less than 80% equity is required by the lender to carry M.I. While there are still a lot of loans that were 100% financing the lenders solved the M.I. problem by giving the Buyer two loans, with the 2nd loan being at a higher rate since it was more risk in case of default.
Now that the market has declined I am also seeing that a few of these second lien holders, that did not require the Buyer to pay M.I., have purchased the insurance themselves. This practice is called "lender-paid" mortgage insurance coverage. It is actually very smart on the part of the lender because it covers them in case the homeowner defaults. So, what happens if you are trying to short-sale and this issue comes up? One of the more known M.I. companies is Radian. If the home is owner occupied they tend to work a little more with the Seller and offer decent terms to the Seller in order to cooperate with the short-sale. Below are some frequently asked questions that will help explain the process with Radian:
What information does Radian require to consider a short sale?
Since short sales are time sensitive, Radian accepts minimal information to consider a request. The next payment due date, outstanding mortgage balance, property value, purchase amount, estimated net proceeds and settlement date are the basics needed along with a borrower financial statement. Additional information may be required to make a final decision.
How long does it take Radian to respond to a short sale request?
Radian responds within two business days, but if additional information is needed to evaluate a request, a response can’t be provided until the requested information is delivered.
Will Radian discuss its approval terms directly with the REALTOR® or seller?
Yes, Radian Workout Specialists will speak with the agent or seller to clarify approval terms and negotiate a mutually acceptable arrangement. The specialist’s name and phone number can be obtained from the mortgage servicer and it’s also important to obtain the Radian Certificate Number so the specialist can quickly identify the case.
What terms and conditions are included in Radian’s approval?
Radian’s approval terms and conditions generally consist of the purchase amount, required net proceeds, a projected settlement date and, if applicable, the seller financial participation requirement and specified funds to the junior lien holder.
Are Radian approval terms negotiable?
Yes, and Radian makes every effort to offer favorable approval terms acceptable to the seller.
Does Radian’s approval of a short sale include a release from mortgage liability?Yes, but only to the extent of Radian’s loss. A release of mortgage liability should be obtained, in writing, from the mortgage servicer.
Why does Radian sometimes require the seller to contribute financially to a workout?
A short sale is an alternative to foreclosure—a settlement of a financial obligation and workout that requires compromise by all parties. If in a position to do so, the seller should participate financially by paying a reasonable portion of what they owe in exchange for approval of a transaction that has value. However, more often than not, Radian does not require seller financial participation. They will look at your credit and if they see anything fishy (such as a recent home purchase) you can bet they are going to require a promissory note before cooperating with the short-sale and possibly for the full amount of their loss.
How does Radian determine the amount of required seller financial participation?
Seller financial participation requirements are negotiated on a case-by-case basis after a careful review of available information regarding the seller’s financial and default situation.
How does Radian determine the promissory note and/or cash payment terms?Radian is flexible with payment terms in an effort to work out a settlement with the seller that allows the sale to move forward. The promissory note is unsecured and interest-free.
Now, if you are looking to short-sale your home and you know or think you might have M.I. on your loan the most important thing that you can do is to find a VERY qualified agent to handle the process for you. Many agents do not understand Mortgage Insurance themselves so they are not going to be able to help you. Make sure to ask questions...if your agent doesn't know...find another!
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