1st Mortgage investor limits on what can be paid to 2nd mortgage
First mortgage, Bank of America is allowing the second mortgage which is CCO Mortgage, 6% of outstanding second mortgage balance or an allowance of $1,554.40. Typical.
CCO rep tells me the balance is now written off and they want a total of $2,600.00 to release. Seller agrees to pay the $1,045.60 difference. Then I get this e-mail from Bank of America negotiator:
" Please be advised that the investor on this deal will not allow funds exceeding the amount on the approval letter to go toward the second lien. Therefore, we cannot approve a HUD which shows additional funds going toward the second lien, even if those funds are not coming from the sale."
First time I have come across this. Seller pay the difference outside of closing for a release of future liability????? Or tell CCO tough take the $1,554.40 and be happy???
Anyone encountered this?
Any input appreciated.
Thank you,
Bonnie Milstead, CRS, GRI
Replies to This Discussion
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Permalink Reply by Cody Lampariello on
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I have actually seen this often when the seller wants to contribute additional funds to the 2nd mortgage or other lein-holder. As far as the primary is concerned that money should go to them. Really the best way is actually to have the buyer pay for it. The primary is usually only concerned with what is on the seller's side of the settlement statement. Any additonal funds paid by buyer can go through. I have had a few situations where they make it a little tough to get it through at that time but if you push them on it you can usually get it done.
I think we did have to close one deal a little over a year ago where the seller paid a lump sum fee in advance to the second mortgage and they sent us an updated approval letter for the remainder so we could close.
Good luck, hope this helps
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Permalink Reply by Joseph Alfe on
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The only investor that does this is Freddie Mac, and there is no way around it unless they settle off HUD, which can be done as long as it is prior to the close. With all other investors, move the contribution to buyer side.
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Permalink Reply by Drew Ludlow on
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This is standard FNMA policy. No one can contribute to the release of a junior lien beyond what the 1st offers. This is in writing (somewhere... I've read it) and it has been recounted to me time and time again by others in the business.
BUT... I was successful (once) in breaking this tradition. I sent an email to [email protected]. I explained the situation. Lo and behold, about 21 days later, it was approved.
FNMA has a helpdesk somewhere in Timbuktu that actually tries to resolve these situations.
Check out this link: https://www.efanniemae.com/is/reprofessionals/pdf/ssadfaqs.pdf It says that your local MLS has to subscribe... but mine doesn't and I was still able to get help.
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not quite. FNMA policy is to not allow any contribution from seller proceeds. Freddie certainly has language that restricts any contribution from any source. On HUD, you list as buyer contribution to..." and FNMA will approve it.
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Good to know... but maybe we need to do a little education of bank negotiators AND FNMA reps. I have been told by ALL sources (bank and FNMA) that they will not consider it from buyer, seller not agent.
I guess the point is that everyone has a different grasp of the guidelines - especially the negotiators.
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Drew, I don't know what to tell you. I closed many MANY FNMA deals that had buyer contributions on HUD's.
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This is a RESPA violation. I have had 2nds demand advance payments and I always ask them "This call is being recorded, right? So, I need to be clear: Are you demanding that we commit a RESPA violation by paying you funds off HUD? I need to run this by the title companies legal department..." They will back peddle immediately.
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Permalink Reply by Michael Schneider on
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So, when are Freddie and Fannie going to be aligned. Wasn't that suppose to have happened by now?
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never. They are and always will be separate. What I think you will see is Freddie going away and Fannie either absorbing some of their paper or a new completely government (not private) controlled entity emerging.
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I mean the plan stated last summer under which Fannie and Freddie would align their collection's processes, which presumably includes short sale guidelines.
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RESPA violation is a common claim in real estate settlement. People often assert that a specific practice is a violation. And, they may indeed be.
So, about a year ago I wrote the HUD, the then enforced for RESPA, now CFBP. I was asking specific questions about paying for sale sale negotiation. Go to the source. I received a call back from an attorney at HUD. Very good guy, very knowledgeable, very informative. I was impressed.
As I recall, virtually every question I was asking was in what he described as the fringe or the gray area. Meaning, practices that are neither explicitly permitted by RESPA not prohibited by case law, HUD opinions, or declaratory rulings.
In short, again as I recall, this expert attorney was basically stating that there is virtually no clear direction one way or the other for most of the settlement practices specific to the handling of short sales.
Sound judgment must be used.
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Good answer. Recall a recent article and news cycle regarding lenders demanding off RESPA payments. It was a big deal for awhile and they are sensitive about it, so when you use the tacktic I mentioned you can usually get results.
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