Posted by Tracey Martin on December 31, 2009 at 3:00pm
The HAFA program is the government's new short sale/ deed-in- lieu program. The government created the program in an effort to assist homeowners who can no longer afford their home and who want to avoid the damage a foreclosure does to a borrower's credit. The following is my understanding of the program guidelines as presented in the MAKING AFFORDABLE Supplemental directive 09-09.The federal government has asked lenders to voluntarily implement a new program called Housing Affordable Foreclosure Alternative (HAFA.) The start date is April 1, 2010 although it is expected that some lenders will implement the program sooner and as I stated earlier, lender participation is voluntary. The guidelines further state that a lender who participated in the HAMP (Homeowner Affordable Modification Program) will be required to participate in HAFA. Loans in which Fannie or Freddie has an interest in do not qualify. They are working on their own short sale program.In order to qualify for HAFA, a homeowner must meet the basic eligibility requirements for HAMP. They are:• The property is the borrower’s primary residence.• The mortgage loan is the first lien originated before 01/01/09.• The mortgage is delinquent or default is reasonably foreseeable.• The current mortgage balance is $729,750.00 or less.• The borrower’s monthly mortgage payment exceeds 31% of the borrower’s gross income.• If the borrower has mortgage insurance, the insurer must waive any right to collection from theborrower.If a borrower meets the following criteria, the participating servicer must give the borrower the option to enter into the HAFA program:• The borrower did not qualify for the HAMP trial period.• The borrower did not successfully complete the HAMP trial period.• The borrower is delinquent on their HAMP modification.• The borrower requests a short sale or deed-in-lieu.The good news for sellers who participate in HAFA:• The lender is required to forgive any deficiency (no more waiting and wondering if they going pursue the deficiency.)• The sellers will get $1500.00 at close of escrow.• Servicers are expected to provide an approval letter 10 days from the date the offer is received (no more waiting for months with no guarantee that the short sale will be approved.)• The short sale will be pre-approved and the server will provide the listing agent with a pre-approved listing price.• The server will pay up to 3%, but no more than $3000.00, to junior lien holders.• If a borrower meets the HAMP qualification requirements listed above, they can participate in HAFA without going through the HAMP program first; as long as their servicer is participating in the program. However, if the borrower hasn’t gone through HAMP first, it will be very difficult for a servicer to get an approval letter to the borrower ten days from the offer submission date, and it will more than likely create delays. During the HAMP program process the borrower’s hardship is evaluated. The servicer becomes very familiar with the homeowner’s situation and all the obstacles that cause short sales to take forever are dealt with. Short sale pre-approval is pretty much determined through the HAMP process, so going through the HAMP program first will help the short sale to move quickly through HAFA.The good news for buyers:• The endless waiting for short sale approval will be eliminated. Short sale approval in 10 days or less.• Lenders must allow at least 45 days for close of escrow.This program will take all those frustrating unknowns out of the short saleprocess.Most of the concerns I have about the program are for those borrowers who have other liens on their property.The HAFA summary states that it is the borrower’s responsibility (with the assistance of their Realtor) to “deliver clear marketable title to the purchaser or investor.” It further says that the servicer can assist the borrower and the listing agent in the negotiations with lien holders, but they are not required to do so. An experienced Short sale agent knows how to negotiate with junior lien holders; however juniors could create problems based on HAFA guidelines.The program provides $3000.00 for junior lien holders. It also requires that junior lien give up the right to pursue any deficiency. If a junior wants more than $3000.00 and/or is not willing to forgive the deficiency, the borrower will not be able to obtain clear title as required. Multiple junior liens could create a problem. If there is more than 1 junior lien holder, $3000.00 may not be enough to satisfy them all.Another potential issue is that senior liens are not mentioned in the program guidelines. Property taxes are considered a senior lien and currently lenders will pay past due property taxes in order to attain clear title. Since the HAFA program stipulates that providing clear title is the borrower’s responsibility, one could assume that the borrower will have to pay any past due property taxes, before close of escrow, so clear title can be provided.definitelyOne other important requirement:• The transaction must be completely arms length. No one involved in the transaction can be related. This includes the Realtors, the buyers and the sellers.My ThoughtsIn California lenders have 2 choices for foreclosure, judicial or, the more popular, non-judicial foreclosure (trustee sale.) Odds are that a lender will pursue the trustee sale route because it is much cheaper. However, by taking the trustee sale route the lender gives up any right to pursue a deficiency.Currently in a short sale transaction the lender does not automatically give up the right to pursue. Large numbers of short sales fail because borrowers are concerned that the lender may pursue the deficiency. The fact that the HAFA program requires that the lender forgives any deficiency is a huge relief for borrowers struggling with their mortgage. Other than the problems that may arise with other lien holders, this program is a major step in the right direction for borrowers who are “under water.” It gives them a real chance at a fresh start. There are so many borrowers out there that are responsible people who find themselves in a night mare they never imagined, this program is an opportunity to move beyond the night mare and begin again. It is also a win for everyone who lives in the neighborhood of the borrower who participates in HAMP. Short sales generally do not bring down the value of the neighborhood as much as an REO does. Overall I see this as a positive solution for a homeowner in a very difficult situation.
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