Frequently Asked Questions About Short Sale Transactions General Questions Q: How can an agent new to short sales learn more about these complex transactions? • Short sales involve many parties, many steps in the process and rigorous documentation. • The National Association of Realtors’ Web site is a great place to learn more, find resources and explore possible certification as a short sale specialist. (www.realtor.org) Q: What should agents understand about Bank of America Home Loans’ approach to homeowners experiencing financial hardship and short sales? • Bank of America Home Loans’ first goal when a borrower calls with a financial hardship is to determine if the homeowner has the desire and financial ability to remain in the home. If so, Bank of America Home Loans first wants to work with the borrower to determine if a loan modification or other homeownership retention solution is available. • At the point it is determined that the borrower doesn’t have the desire and wherewithal to keep the home, and all other options are exhausted, a short sale may provide advantages to the borrower, servicer and investor as a last resort to foreclosure. • While the advantages of short sale, such as keeping a foreclosure off of a credit history, may appeal to some, these borrowers sometimes overlook possible disadvantages of a short sale, including: −− Potential tax liability that the borrower should explore with a tax advisor. −− In some cases, the seller may be asked to contribute to the loss at closing with either cash or execution of a promissory note. The borrower will need to demonstrate a financial hardship that precludes him/her from participating in the shortfall on the sale. −− The mortgage insurance (MI) company or lender may seek to recover the remaining balance of the loan after the short sale closes. Q: Will Bank of America Home Loans postpone a foreclosure sale during the short sale process? • Postponement is an option if appropriate steps have been taken to initiate the short sale process, but it is not automatic or guaranteed. There are numerous factors to take into consideration, including local and state statutes regarding foreclosure. A foreclosure sale postponement should be confirmed with the short sale negotiator. Q: Why does the short sale process take so long? • In a traditional short sale, the review process doesn’t begin until an executed purchase contract is received. • Acceptable and complete documentation of the borrower’s financial hardship and financial information must be provided by the seller or agent and reviewed by the servicer. Everyone has a role in completing these tasks in a timely manner. • An appraisal/Broker’s Price Opinion must be completed by the servicer to determine current value. • The offer must reasonably meet the current market value. (The servicer has a responsibility to mitigate losses to the investor, and all participants have a responsibility and desire to mitigate unnecessary losses to property values in the surrounding community.) • Determination must be made that it is an arms-length transaction. • The short sale transaction must meet investor and, if applicable, mortgage insurance guidelines. In some cases, documentation must be submitted to both parties for review. • Additional negotiation and third party approvals may be necessary when there is mortgage insurance on the loan or a second lien on the property. All lien holders on the property must approve the transaction. 1 Q: What steps has Bank of America Home Loans taken to increase the efficiency of short sale reviews so that processing times are maintained near traditional levels? • Bank of America Home Loans’ goal is to reach a decision in 60 days or less. • Bank of America Home Loans has implemented a new software product for processing short sales called Equator. This interactive system is accessible 24/7. Both the agent and homeowner can see the status of the short sale at any time. Communication between all parties may be done through email. • Over the past year, Bank of America Home Loans has: −− Increased staffing by 90 percent in 2009 compared to 2008 and enhanced training for its associates. −− Created a dedicated short sale call center, which can be reached at 1-866-880-1232. • It is open from 8 a.m. - 9 p.m. Eastern Time, Monday through Friday • In order to ensure that proper resources are used to process short sales, real estate agents should allow 15 days for processing of the appraisal and/or Broker’s Price Opinion after confirming the receipt of an offer. −− Established a value review at the time of the initial contact by the borrower or agent that allows Bank of America Home Loans to decline offers early in the process that clearly are too far below fair market value. Q: Why do servicers turn down short sale offers in a market with declining values when it is likely they will end up selling the property for less in a foreclosure sale? • The property price has to be set based on current market value at the time of the offer, and the offer should be within a reasonable range of that value. • It is important to understand that an independent determination of value—an appraisal and/or Broker’s Price Opinion—is used to determine market value. Bank of America Home Loans has a responsibility to its investors and to communities in general to obtain a value as close to the current market value as possible. Q: What should borrowers, agents and brokers know about facilitating the short sale process? • Contact the servicer as early as possible. • Ensure all customer financials are in PDF format. These documents can include, but are not limited to, most recent pay stubs showing year-to-date earnings; most recently filed and signed federal tax return with all schedules; documentation of other income, such as alimony or child support, benefits (e.g., unemployment, social security, disability, death, pension, public assistance or adoption assistance); or rental income; and a brief explanation of current financial hardship. • Complete all documentation accurately and as soon as possible. • Make sure the purchase offer is fully executed. • Submit the best possible purchase offer at fair market value. • Provide listing information and comparables to support price. Q: What are some common factors that might delay the short sale process? • A change of buyer or agent at any time in the process may require additional processing and/or approvals. Please notify Bank of America Home Loans as soon as there is a change. • If Bank of America Home Loans is not fully delegated to approve the short sale, investor/mortgage insurance approval is needed. • A release on outside second or subordinate lien(s) must be received prior to issuing an approval letter. • If the customer has filed bankruptcy, the trustee must provide a court document that approves the sale of the short sale. • Lenders, including Bank of America Home Loans, will stop a short sale if it is determined that short sale flipping is happening. 2 Q: Is Bank of America Home Loans doing any on-site counseling of short sale sellers? • There are currently no physical sites offering short sale counseling. Q: Are short sale properties selling for any type of “discount” versus market value? • Short sale offers must be in line with current market values and produce net proceeds that exceed the net amount the investor would expect to recover through foreclosure. As a result, approved short sale prices average at or near the market value. • Discounts on the loan balance vary widely with local market conditions and loan characteristics. Q: The biggest impediment to completing short sales with Bank of America Home Loans is the policy of granting only “recourse” short sales. Is the bank considering changing that policy? • The following legal language is contained within Bank of America Home Loans’ short sale approval letters, but in practice, deficiency recovery is subject to a number of factors, including the state the property is located in, the type of loan, and if the borrower maintains the property as their primary residence. Bank of America and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above. If this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deficiency based on the terms of the mortgage insurance policy. Q: Why does Bank of America Home Loans have the short sale package go through three stages before they will agree to the short sale? • The three stages—set-up, negotiation and closing—were implemented to improve efficiency in the short sale process. Now that Equator, Bank of America Home Loans’ new software product, has been rolled out, one or more of those stages may be eliminated in the future. Q: Why does Bank of America approve the buyer instead of providing an approval for the purchase amount? • This is a misperception. In its approval letters, Bank of America does not state a buyer’s name. Rather, the letters reflect an amount. Q: Does Bank of America Home Loans consider short sales on non-owner occupied properties? • Yes. Q: Must a borrower be behind in their payments before a short sale will be considered? • Not always. The borrower can be either delinquent or be able to demonstrate imminent hardship. Q: Will Bank of America Home Loans consider a short sale when an owner-occupant borrower is forced to relocate due to a job change? • Yes. 3 Questions About Bank of America Home Loans’ Cooperative Short Sale Program Q: What is Bank of America Home Loans’ Cooperative Short Sale program? • Bank of America Home Loans has a new initiative in the pilot stage that will provide an accelerated short sale process for customers who have no workout options and may benefit from a short sale to prevent foreclosure. • Under this program: −− Bank of America Home Loans will proactively reach out to homeowners who have been considered for a modification and either did not qualify or fell out of the program to measure their interest in pursuing a cooperative short sale. −− The customer will list the property at fair market value. Bank of America Home Loans will continue to work with the customer and agent throughout the process, and if it sells, Bank of America Home Loans will be in a position to approve the sale within two weeks of the offer. −− Bank of America Home Loans will ask that the property be actively marketed for 120 days. If it doesn’t sell in that time, Bank of America Home Loans will accept a deed in lieu to satisfy the mortgage. • The Home Affordable Foreclosure Alternatives program (part of the Obama Administration’s Making Home Affordable plan) will go into effect in April 2010, providing servicers with a streamlined cooperative approach for customers who are not eligible for the government program. Q: When will the Cooperative Short Sale program be ready? • It is in the pilot stage right now with an anticipated rollout in spring 2010. Q: If Bank of America Home Loans sets a reserve price, won’t buyers and agents see that as the price they should offer? • Bank of America Home Loans does not reveal the reserve price under either of the new program concepts for that reason. Any offers should reflect the actual market trend and not be tied to a pre-set amount. Q: Why hasn’t Bank of America Home Loans implemented a process like the Cooperative Short Sale program before? • Today’s economic environment has precipitated an increased volume of borrowers in financial hardship. Unprecedented times have prompted the industry and government to seek unprecedented solutions in all facets of homeownership retention and foreclosure avoidance. Q: How does a borrower interested in the Cooperative Short Sale program sign up? • Eligible homeowners, based on demonstrated hardship, will be notified by mail and provided with instructions on program participation. • Another resource for information is our dedicated short sale call center (1-866-880-1232, 8 a.m. - 9 p.m. Eastern Time, Monday through Friday). In addition, borrowers may also call Bank of America Home Loans’ customer service team at 1-800-669-6607 to learn more about the options available to them. Questions About Equator Q: What is Equator? • Bank of America Home Loans has recently partnered with Equator to develop an Internet portal for real estate professionals and homeowners. It is the first around-the-clock platform that allows both parties to track the status of short sales, exchange documents and communicate with Bank of America Home Loans. −− It streamlines processes and improves communication with agents and homeowners. 4 −− The system finds and tracks the short sales of properties in Bank of America Home Loans’ servicing portfolio and provides real-time status updates and information. −− The Web portal also accepts documentation to expedite the short sale process. • The Internet portal can be accessed at www.equator.com. • The Equator Internet portal is operated by Equator Financial Services and any questions about its services should be addressed to this service provider. Q: Is there a cost to sign up? • Agents, buyers and sellers can create a free online account. Q: Is training provided? If so, is there a cost for the training? • Once a free online account is established, the Web site offers agents information about how to use the system, become certified and other details. • Equator can answer any additional questions about the Web site. Q: Do agents need to be certified to track short sales through Equator? How do agents become Equator.com certified? • Certification is not mandatory, but it can help with familiarity of the system. • Once a free online account is established, the Web site offers agents information about how to use the system, become certified and other details. • For additional information, contact Equator. ------------------------------------------------------------------------------------------------------------------------------- 5