HAFA – Home Affordable Foreclosure Alternative – Even More Information

If the servicer has not already discussed a short sale or DIL with the borrower, the servicer must proactively notify the borrower in writing of the availability of these options and allow the borrower 14 calendar days from the date of the notification to contact the servicer by verbal or written communication and request consideration under HAFA.  If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer.

Once a servicer determines that a short sale is the best course of action for the borrower, or upon request of the borrower, the servicer will provide a Short Sale Agreement (SSA) which contains information such as acceptable list prices, minimum net proceeds, and the duration of the SSA.

Once an offer is received, you will provide the servicer with a Request for Approval of Short Sale (RASS) which details the terms of the offer. You will also include with the RASS a copy of the executed sales contract and all addenda, buyer’s documentation of funds or buyer’s pre-approval or commitment letter on letterhead from a lender, and all information regarding the status of subordinate liens and/or negotiations with subordinate lien holders. If an offer is made on the property before the servicer provides a SSA, you will provide an Alternative RASS for the servicer’s consideration.

While servicers may amend the terms of the SSA in accordance with investor requirements, applicable laws or local real estate practice, at a minimum the SSA must include the following:

  • A fixed termination date not less than 120 calendar days from the effective date of the SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower.  The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months if agreed to by the borrower, in accordance with the requirements of the investor.
  • A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
  • Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
  • The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
  • The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and when applicable, notification that the servicer retained a contractor to assist the listing broker with the transaction along with the payment amount (expressed as a fixed dollar amount or percentage of the contract sales price) if paid from sale proceeds.
  • A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
  • Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
  • Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.
  • An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
  • An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $3,000, which will be deducted from the gross sale proceeds at closing.
  • Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
  • Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
  • The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s gross monthly income.
  • An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
  • Terms under which the SSA can be terminated.

Within ten business days of receipt of the RASS and all required attachments, the servicer must indicate its approval or disapproval of the proposed sale by signing the appropriate section of the RASS and mailing it to the borrower.

The servicer must approve a RASS if the net sale proceeds available for payment to the servicer equal or exceed the minimum net determined by the servicer prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met.  Additionally, the servicer may not require, as a condition of approving a short sale, a reduction in the real estate
commission below the commission stated in the SSA.

The servicer may require that the sale closing take place within a reasonable period following acceptance of the RASS, but in no event may the servicer require that a transaction close in fewer than 45 calendar days from the date of the sales contract without the consent of the borrower.

Servicers will receive $1500 as incentive to close a short sale transaction under HAFA, and investors will be reimbursed up to $2000 for allowing part of the proceeds to be paid toward subordinate lien holders. For each three dollars an investor allows to be paid toward a subordinate lien, they will receive one dollar from the U.S. Treasury up to $2000. This is helpful to remember when trying to get first lien holders to allow an amount to be paid toward a subordinate lien holder.

The subordinate lien holders are always difficult with regard to short sale negotiations, and the new Supplemental Directive gives you some good bargaining power when negotiating with a second. The most important regulation is that each subordinate lien holder, in order of priority, may be paid no more than six percent (6%) of the unpaid principle balance of their loan, until the $6,000 aggregate cap is reached. Skillful negotiation will still be required, however, because a subordinate lien holder does not have to agree to accept the lesser amount and could potentially force the property in to foreclosure if they refuse to provide an acceptance letter.

Even More HAFA (Home Affordable Foreclosure Alternative) Information

It is important to note that lenders are not required to participate in the Making Home Affordable Program, and those which choose to participate have their own internal guidelines for how the program works within their company. In order to determine what internal guidelines are offered through your client’s lender you will need to contact the lender in question and ask directly.

A participating servicer must consider a homeowner for HAFA if the borrower requests a short sale or deed-in-lieu under HAFA, and a servicer will also consider a homeowner for HAFA within 30 days of the date the homeowner:

  • does not qualify for HAMP; or
  • does not successfully complete a HAMP trial period; or
  • misses at least two consecutive payments on a HAMP modification.

However, before evaluating a homeowner for HAFA, a participating servicer must first consider that homeowner for other loan modification or retention programs that they offer. In addition, pursuant to the servicer’s policies, every eligible homeowner must be considered for HAFA by a participating servicer before the homeowner’s loan is referred to foreclosure and before the servicer may allow a pending foreclosure sale to continue.

With a HAFA short sale, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale process by providing a standard process flow, minimum performance time frames and standard documentation.

HAFA (Home Affordable Foreclosure Alternative) Qualifications

I’ve been fielding calls about the HAFA program for the last month and it’s so unfortunate that the “powers that be” decided to market this program so heavily but did not decide to use their “power” to inform the public. Here’s a quick run down of the qualifications:

  • You must be 60 days behind
  • Your home must be owner occupied (you can move out due to job transfer but not to “move up”)
  • You must have gotten your loan before January 1, 2009

But the biggest kicker here is that the banks are doing this VOLUNTARILY! Meaning they don’t have to do this, so if you have the following types of loans, you are out of luck:

  • FHA
  • Fannie Mae (which actually administers HAFA!)
  • Freddie Mac
  • VA
  • Ginny Mae
  • Some Private Label loans

That’s about 70% of the loans out there.  When you get a loan at Bank of America for example, they sell the loan to an investor and keep the rights to collect the payment from you.  The investor is usually one of these companies above.  That’s where the problem is.

We don’t even get to talk about the “move out money” if you have a fannie mae loan.

How do you find out what type of loan you have?

You could simply call your servicer/bank and ask or you can call the institutions themselves and ask.

HAFA – Home Affordable Foreclosure Alternative – Video to Realtors

Understanding HAFA is going to take some time from Realtors and home owners alike. What this video fails to mention is that only 30% of the loans out there would even be eligible for this program. The shocking part is that what % of that 30% actually qualify by being behind 60 days or more and are owner occupied.

Thought it was worth sharing even though it’s aimed at Realtors

You HAFA learn about HAFA

The HAFA (Home Affordable Foreclosure Alternative) programs is going to be rolled out on April 5th and there’s a lot of hub-bub about it.  Let me ask you, did you remember or notice the HAMP plan?  Probably not.  Home Affordability Modification Program was a failure.  With good intentions, the servicers found out ways to get the most tax dollars and give the least relief.

As with the other programs available, your servicer has to VOLUNTEER to be a part of this.  It means more money for them to do loan mods and short sales, but it’s completely voluntary. Now the HAFA program comes out with 47 pages of content.  Let’s do an overveiw:

  1. If you can modify your loan instead of sell it short , you DON’T qualify!!! For instance, I know of several people who have shorted their investment properties simply because they were upside down. If they had waited until after April 5th, 2010 , they would have had to at least attempt to get a loan modification so that their payment was less or the same as the rent payment before selling them for less than the loan amount. Essentially they would not be able to do that again. (sell them first without attempting to modify).  This is assuming that the bank/servicer is volunteering on the HAFA program.
  2. A broker’s price opinion (BPO) and an appraisal will be one of the first things done and a short sale amount will be determined before the home is expected to go on the market. Now it’s anyone’s guess what the bank will take and this leaves most buyers in the dark for a long period of time. After April 5th, a price is chosen, the house is listed and that’s that!! Take it or leave it. Again, if the bank is volunteering to participate in this program.
  3. All offers must be responded to within 10 days. YES or NO.
  4. Sellers can stop paying their mortgage payments as soon as the short sale is approved and this lack of payment will not be a mark against their credit report.
  5. Sellers can get a bonus of up to $1,500 at settlement.  Keep in mind that in the past, the servicers would require that the seller waive their acceptance of these “bonuses” to allow for any past due HOA, Taxes or excessive closing costs.