One of the most common complaints about the short sale process is the lack of standardization between the numerous lending institutions that have essentially created a labyrinth of ever-evolving documentation, rules, regulations and procedures that have turned the process of buying and selling a home into a nightmarish odyssey.
The federal government has responded by creating the Homeowner Affordable Foreclosure Alternatives program (HAFA). HAFA has it's genesis in the 2009 Home Affordable Modification Program (HAMP), which was developed to provide rules and incentives for loan modifications on distressed owner-occupied homes. While well-intentioned, the program, after receiving over 1.7M requests for loan modifications by January 2010, discovered that many of these applications failed to qualify for a loan modification.
Some of the reasons given for this were:
1. Many of the homes had lost so much value that the borrowers (homeowners) were no longer interested in pursuing a modification.
2. Many of the borrowers were now unemployed or underemployed.
3. Borrowers who qualified for a loan modification were failing to make their modified loan payments at a rate of over 50%.
4. Some borrowers had already moved on with their lives, were no longer interested in keeping the properties, and had made alternative living arrangements.
In order to prevent these homes from further clogging up the already besieged courts flooded by volumes of foreclosures, the federal government identified the short sale as a viable alternative, and on November 30, 2009, announced the creation of HAFA. HAFA is ostensibly a program that provides standardized policies, procedures, forms and much needed timeframes to establish short sales or deed in lieu of foreclosure (DIL) outlets for borrowers who did not qualify, were not interested in, or were not able to make timely payments under the HAMP program. The program became effective on April 5, 2010. The original November 30, 2009 program was revised on March 26, 2010, just 10 days before its implementation. All lenders and servicers participating in HAMP and all qualifying loans are required to participate in HAFA. The program is scheduled to expire on December 31, 2012.
Effective June 1, 2010 both Freddie Mac and Fannie Mae have released their own Home Affordable Foreclosure Alternatives (HAFA) guidelines, forms and procedures. As expected the new Fannie and Freddie HAFA rules and forms are almost identical to the original HAFA program released by the U.S. Treasury Department. However, both agencies have their own forms that must be used and there are a few twists and differences from the original program that everyone should know about. With the release of the new Fannie Mae and Freddie Mac HAFA rules and forms, virtually all owner occupied properties in this country are now subject to the HAFA program.
General Features – HAFA
A. Allows Short Sale Borrowers to receive pre-approved short sale terms prior to the property listing.
B. Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission, agreed upon in the short sale agreement
C. Requires that borrowers be fully released of future liability for debts (No deficiency liability).
D. Provides financial incentives for borrowers, servicers and investors.
E. Buyers can receive notification of approval of their offer within 10 days of submittal.
HAFA does not alter or modify lender or investor guidelines. HAFA is a procedural overlay that standardizes processes, procedures and forms.
Owner-occupied homes will no longer automatically go into foreclosure. They must first be evaluated for a loan modification under HAMP. If the HAMP modification does not succeed, the borrower must be offered the HAFA short sale process before it can go into foreclosure.
Basic Eligibility Requirements
1. Must be Owner-Occupied Property
2. First Lien Mortgage must have been originated on or before January 1, 2009.
3. The mortgage is delinquent or default is reasonably foreseeable
4. The current unpaid balance on the home is $729,750 or less
5. The borrowers total monthly mortgage payment exceeds 31% of the borrower’s gross income.
Lenders and servicers are allegedly looking closely at the HAFA program as a short sale model for investor properties in the future. This will not be a part of the HAFA program, but may serve as a procedural inspiration for establishing a short sale channel for investor-owned properties.
For more information on HAFA short sales, do not hesitate to contact me at 305.282.1763, or email me at email@example.com.