Fannie Mae Limits Max Contribution to Junior Lien for non-HAFA?

I am working on a short sale where PNC mortgage has both the 1st and the 2nd -- completely different negotiators. 1st is owned by Fannie Mae. 2nd investor is undisclosed.

We have approval from the 1st with 6% contribution to the 2nd approved. Negotiator for 2nd says he is ready to issue an approval to release the lien for that contribution. When I went back to him and said that Sellers need the "no deficiency" language, his response was that this would require a larger contribution, but that this will not be possible, as the investor on the 1st (Fannie Mae) will not permit more than a 6% contribution to the 2nd, and will not allow funds to come from any other source.

I am quite aware that under HAFA, 6% is a max contribution (with no promissory note or other cash contribution coming from somewhere else) to the 2nd when either Fannie Mae or Freddie Mac is the investor -- but is this still a constraint for a non-HAFA short sale?

I have another non-HAFA Freddie Mac right now where the 1st is contributing 10% of the unpaid balance to the 2nd.

Does anyone have any guidance on this? Is the Negotiator on firm footing here, or do I need to call his bluff?

Thanks in advance for any help!

We just completed a PNC as the second and B of A on the first. PNC will only do a full release with for about 25 to 30% cash contrbution of the outstanding loan amount. PNC would only give a lien release with 10% of the loan payment. No bluff that is there policy. This seller had cash and paid PNC 30% to get a full release of debt. Buyer contributed $20,000 to B of A. But when we put the offer in we reduced by $20,000 knowing the banks are now wanting some form of cash contribution.

BofA accepted selling price but wanted $20,000 cash contribution. Buyer was all set to provide funds. Also seller didn't miss any payments on the house. Short sale was only 50 point hit on credit score. We are telling people if they are going to missed payments and do not have cash to pay off the second and or to give to the first they are realy better off letting the sale go into foreclosure. Doing a short sale missing payments and not getting full releases is really no benefit to the seller. They are better off going to foreclosure and negotiating with the collection departments for smaller payments on full releases. PNC will come after them and collect. Not sure about B of A but with the notes the seller has to sign they can come after them at any point in there life there is not limit. I don't recommend anyone siging it.

Replies

Linda Susan Fox June 27, 2011 at 4:18pm

I had a short sale where PNC was holding the junior lien and they would release for one amount and forgive for another. They stand firm and do not participate in HAFA. I tried to have them reduce the amount to forgive and they stood firm. In my case the buyer contributed the difference through escrow. Not a Fannie Mae first at the time. In my office PNC is a dirty word.
Kevin - Greenville, SC June 19, 2011 at 1:56am

Barbara @ Eric - Get with me on this it's not easy, but..... - 864-485-9283
Tim W June 19, 2011 at 1:26am

We just completed a PNC as the second and B of A on the first. PNC will only do a full release with for about 25 to 30% cash contrbution of the outstanding loan amount. PNC would only give a lien release with 10% of the loan payment. No bluff that is there policy. This seller had cash and paid PNC 30% to get a full release of debt. Buyer contributed $20,000 to B of A. But when we put the offer in we reduced by $20,000 knowing the banks are now wanting some form of cash contribution.

BofA accepted selling price but wanted $20,000 cash contribution. Buyer was all set to provide funds. Also seller didn't miss any payments on the house. Short sale was only 50 point hit on credit score. We are telling people if they are going to missed payments and do not have cash to pay off the second and or to give to the first they are realy better off letting the sale go into foreclosure. Doing a short sale missing payments and not getting full releases is really no benefit to the seller. They are better off going to foreclosure and negotiating with the collection departments for smaller payments on full releases. PNC will come after them and collect. Not sure about B of A but with the notes the seller has to sign they can come after them at any point in there life there is not limit. I don't recommend anyone siging it.
Eric Mieles June 16, 2011 at 10:39am

I am going to post this topic as an alert in the PNC forum. As of May 15th new directives were given by the investor to allow 6% or $6,000 whichever is less toward the 2nd. There can be no contributions from buyer, agent, no one!!!

It is killing my deal and I had full approval however negotiators had to go back and do a full audit of there files and this was picked up.

The buyers of this deal are willing to contribute $2500 to a jr lien to get it done and PNC won't allow it. Incredible!!

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