Fannie, Hafa, & Promissory Notes?
With all of the changes on Fannie short sales, I want to be sure I have this straight.
My client has been offered a Fannie short sale and an appraisal has been done. (It's waaay too high, but that's a separate issue I'll deal with.) Anyway, from the beginning, we'd planned to pursue a HAFA sale. After discussions with the servicer, they have agreed that a HAFA sale is acceptable for the client, but continue to state that they will pursue a promissory note workout with the borrower after the sale closes.
I thought that a HAFA sale would release the borrower from future liability? Especially in Washington State where we're working.
Can someone clarify this for me? I did look on the Fannie site and in their FAQ doc dated 4/30/13 it sure does look like they're reserving that right .......
Does anyone have any suggestions for us? I'd sure appreciate it. Thank you!!
Replies to This Discussion
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Permalink Reply by Gabrielle Nemes on
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Brian, Fannie does do HAFA II short sales: https://www.fanniemae.com/content/faq/short-sale-faqs.pdf ... My question is that, at least by looking at this document it would appear that they are looking for a promissory note. Previous to this document, they did not. And my understanding is that an accepted HAFA short sale doesn't require it.
It's a bit confusing as this latest FAQ document seems to not follow those same HAFA regs. ... Am I missing something?
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Permalink Reply by Bryant Tutas on
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They call it HAFAII but it's not related to HAFA at all. It's really the new standard short sale. Here are the guidelines for when they must request a prom note:
PROMISSORY NOTE TEST AND FORMULA
The servicer must evaluate a borrower for a promissory note if the borrower’s future debt-to-income ratio (“back-end ratio”) is less than 55%. The servicer must calculate the borrower’s debt-to-income ratio based on
© 2012 Fannie Mae. Trademarks of Fannie Mae. SVC-2012-19 Page 7
the borrower’s future housing expense.
NOTE:
The borrower’s future housing expense, if not known, should be estimated at 75% of the borrower’s current contractual monthly mortgage loan payment including principal, interest, and tax and insurance escrows. If the servicer does not escrow for taxes and insurance, the servicer must estimate the borrower’s monthly tax and insurance escrow payment.
If an evaluation has been triggered and the servicer determines that the borrower has capacity to make a promissory note contribution, the servicer must initially request a five- or ten-year term promissory note with a monthly payment of no more than one-half of the difference between the borrower’s future total monthly debt-to-income ratio and 55%. The resulting promissory note payment should be affordable and result in a future total monthly debt ratio under 55%. The monthly promissory note payment must be rounded to the nearest dollar.
Initial Monthly Promissory Note Payment =
(55% - future total monthly debt ratio)/2 X Gross Monthly Income
The promissory note balance is the final negotiated monthly promissory note payment multiplied by the negotiated term (60 months or 120 months), not to exceed the deficiency amount.
The promissory note must have a note rate of 0%.
A promissory note is not required if the promissory note balance would be less than $5,000.
Promissory Note Balance = Monthly Promissory Note Payment X Promissory Note Term
Promissory Note Example
Initial Monthly Promissory Note Payment
(55% - 49%)/2 X $4,000 = $120
Promissory Note Balance
$120 X 60 months = $7,200
If a borrower is either unwilling or unable to agree to a monthly promissory note payment based on the calculation above, the servicer may negotiate a lower amount, but must provide an explanation in the mortgage loan servicing file of the specific circumstance that limited the borrower’s ability to make a contribution.
A Promissory Note model template (Form 190) is available on eFannieMae.com. Use of the Promissory Note model template is optional; however, it reflects the minimum level of information that the servicer must include. A servicer that elects to use the Promissory Note form must revise it as necessary to comply with applicable
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Permalink Reply by Ellen Dittman on
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Takes alot of work to research this stuff. Therefore appreciate this information!
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Whew! Thanks, Bryant ...
So if this really isn't HAFA anymore, is the borrower still entitled to a $3k relocation?
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Permalink Reply by Kevin - Greenville, SC on
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If the Borrower is required to sign a prom note or has to make a cash contribution they will not qualify for the relocation incentive.
Borrower Relocation Incentives
The borrower is entitled to an incentive payment of $3,000 from Fannie Mae to assist with relocation expenses
following successful completion of a short sale unless:
the borrower is required to contribute funds or execute a promissory note;
the borrower has PCS orders and receives a Dislocation Allowance (DLA) or other government
relocation assistance; or
the servicer has knowledge that the borrower is receiving relocation assistance from another source
other than the servicer.
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They also must owner occupy.
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I thought I understood all of this, thanks to Bryant and Brian and Kevin and everyone else that responded here ...
But then my client brought me this link:
http://fanniemae2.articulate-online.com/p/5070305432/DocumentViewRo...
The link is from the HomePath site in their FAQ section for listing agents. And it says:
"Fannie Mae will not pursue the borrower for any deficiency amount owned under the current mortgage on a completed short sale transaction."
And then in the next breath, there's talk about a promissory note.
So which is it? Isn't a promissory note designed to be repayment of a deficiency amount?
No wonder there's confusion. Good grief.
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Permalink Reply by joe beauchamp on
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The note and the release of debt are separate issues. A note will be a new unsecured debt. Say you owe $300K and the bank collected $100K and they feel that your $500K in the bank suggests you can take a hit for some of the losses so they ask for $10K at closing or a $20K note. At the conclusion of the sale, they will not go after you for the $200K loss. If you take the note, you are on the hook for $20K only.
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Thanks, Brian ... it sure seems that way. This has been confusing ...
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Permalink Reply by Fred Bauscus on
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Be careful in assuming that your sellers will have the deficiency waived with any short sale in Washington state. It is not a non-deficiency state. The lien holder must state in their first communication regarding the short sale whether or not they will waive the right to pursue the deficiency, but that is all.
I think the confusion lies in the fact that after a foreclosure the first lien holder cannot pursue a deficiency.
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Yes, that is correct. However, My confusion was that, with HAFA, the deficiency is waived, and I was counseled by other short sale agents that the same was true with HAFA II.
The ultimate issue then becomes "why" pursue a short sale at all. If Fannie won't waive the deficiency, it's a small small credit report benefit between a short sale and a foreclosure. The client "may" be able to purchase again slightly sooner with a short sale and the stigma of a foreclosure stays with the credit agencies longer. However, with the requirement that an owner with a true medical hardship commit to a promissory note, walking away may be easier and better for them in the long run.
In this instance, the owner's medical hardship is ongoing and paying the medical bills comes before paying the mortgage. Debt:Income ratios may still require a promissory note for now, but what happens next year when the medical bills are higher?
As a short sale agent who truly wants the best for her clients, I may be hard pressed to take a Fannie short sale where there is income, but a hardship that forced an owner to fall significantly behind in mortgage payments -- especially on a house that's far upside down in value and the proffered loan mod benefit was negligible.
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Permalink Reply by Aida Gonzalez on
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does the borrower has a 2nd lien? HAFA program waives any deficiency judgment, lender can't ask for promissory note and can't go to the borrower after short sale is approved and close. but, if the property has a 2nd lien mortgage, may be the 2nd lender dones't approve for HAFA, may be ask for promissory note, and can pursue the borrower after closing, this information I got for several web sites, and for experience.. This is the HAFA program, and I dont know if has changed, but I don't think so.
http://www.makinghomeaffordable.gov/programs/exit-gracefully/Pages/...
This is directly web site. and it is very clear..
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- You can get free advice from HUD-approved housing counselors and licensed real estate professionals.
- Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls "short" of the amount you still owe. The deficiency is guaranteed to be waived by the servicer.
- In a HAFA short sale, your mortgage company works with you to determine an acceptable sale price.
- HAFA has a less negative effect on your credit score than foreclosure or conventional short sales.
- When you close, HAFA may provide $3,000 in relocation assistance.
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