Senate Bill 5221, passed by the Washington legislature earlier this year and signed by Governor Gregoire today, amends the Distressed Property Law. Excerpts from The Washington Realtors press release:

There is now a general exemption for all real estate agents and brokers who provide real estate services pursuant to the Agency Law. So long as agents and brokers do not participate in a distressed home conveyance (essentially a scam transaction), agents and brokers cannot become distressed home consultants.

“With this bill, we will have overcome an important hurdle on the path to reviving our housing market,” said Greg Wright, President of Washington REALTORS®. “Being able to help homeowners prevent foreclosure is a real key to stimulating the real estate market and critical to economic recovery.”

Long story short, real estate agents may dodge bullet when working the distressed market. Buyers may dodge said bullet if the seller is represented by an agent or lawyer. Seller must be in a position to hire a real estate agent (and pay a listing commission) or lawyer for buyer to avail itself of protections (namely avoiding the possibility of a CPA violation). The NWMLS distressed seller language was convoluted and not well received. Nothing will be missed there. Pressure remains on buyers (i.e., “investors”) trying to work the distressed sale market with direct seller solicitations and off balance sheet deals – the intended purpose of the law. Good job contributors and legislators.

An update on the federal loan modification program – according to a report filed by Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, loan modifications and refinancings can begin immediately. The program is scheduled to end on Dec. 31, 2012. Loan servicers that intend to participate must enter into agreements with the Treasury by Dec. 31, 2009.

Eligibility Requirements

Eligibility requirements for homeowner participation include:

• the loan must have been originated on or before Jan. 1, 2009;
• the mortgage must be a first lien loan on owner-occupied property, and the borrower’s occupancy must be verified;
• a single-family residence may have an unpaid principal balance of no more than $729,750, with a higher limit for two- to four-family properties;
• the borrower’s income must be fully verified;
• a loan can be modified only once under the program.

Terms and Conditions

Participation requirements for lenders and mortgage servicers include:

• servicers must include all eligible loans in the program and must make reasonable efforts to obtain any necessary contract waivers;
• all loans that are at least 60 days delinquent or at risk of imminent default must be tested for eligibility under a net present value test, and all that pass the test must be offered a loan modification (unless a contract prohibits modification or there is evidence of fraud;
• payments on the loan are to be reduced to no more than 31 percent of the borrower’s gross monthly income under a specified sequence of modification options;
• the sequence of options is interest rate reduction, then loan term extension, followed by forbearing principal, with refinancing being an acceptable alternative.

Financial Incentives

Under the program, loan servicers, lenders and borrowers all will be eligible for financial incentives to modify loans and keep the modified loans current. These include:

• the government will share with loan holders the cost of reducing payments from 38 percent to 31 percent of the borrower’s monthly income;
• servicers will be paid $1,000 for each modification and continuing annual fees of $1,000 for each loan that remains current;
• a single-family residence may have an unpaid principal balance of no more than $729,750,
with a higher limit for two- to four-family properties;
• borrowers who stay current on their payments will be eligible for annual principal reductions of up to $1,000 for five years;
• additional one-time bonuses of $1,500 for loan owners and $500 for servicers will be paid for loans that remain current.

In addition, there will be incentives for second-lien holders to extinguish their liens in order to permit modifications. The Treasury noted that comparable incentives will be available to encourage loan refinancing. Loan servicers also will be given incentives to take actions other than foreclosure for nonperforming loans.

The plan won’t make getting hold your loan correspondent any easier. I have heard reports from borrowers who claim to have made literally dozens of calls only to be placed on hold, or have the call dropped when switching to the “person that can help.” And delinquent borrowers will continue to have their mail flooded with solicitations from out of state loan modification companies that promise up to a 50% principal cut through their diligent staff after your $4,000.00 check clears their bank. So, help may be out there for some, but getting to the life raft through the turbulent seas will take some serious skill and determination.

The Plan is the obvious big news of the day. To qualify for relief you must be able to demonstrate that:

* You live in your house, condo, or co-op;
* It’s your primary residence;
* Your loan is less than $729,750 for a single family house; for multifamily homes the cap rises to $1.4 million for a four-unit house; and
* You’re in default or about to face default. By the way, you’ll have to sign an affidavit saying you can’t afford your mortgage.

There are no limits on the ratio of the size of your loan to the current market value of your home, and homeowners who are way “underwater” can apply. However, here’s a little catch – mortgage servicers will get to apply a standardized test (details still pending) to see if lenders would lose more money by refinancing or foreclosing. Even with a standardized test there is a plenty of room for interpretation available. So it’s still really the lenders’ game folks. Not everyone who’s been punished by layoffs and the economy, and really needing assistance, are upside down on their home loans just yet. So they’re out. I polled a few people in the lending business this afternoon and have been told that it’s going to be incredibly difficult and time consuming to move these deals forward. And again, a great many people that should get some help are barred by the rules. If you do quality, you may want to also check out other avenues for relief like the Neighborhood Assistance Corporation of America (“NACA”); a non-profit, community advocacy and homeownership organization (visit at https://www.naca.com). A client brought this organization to my attention today. No endorsement – I haven’t done any due diligence yet. I simply pass along the reference. There will probably be some kind of indemnity provision as part of the loan modification to prevent filing or force settlement of predatory lending actions by borrowers. That would logically follow and will be a great risk mitigation factor for lenders. In the meantime, the notices of default and notices of foreclosure continue to flood the gates. Troubled borrowers will need to be diligent and continue to push back as hard as they can. Good times – we’ll survive somehow.