HAFA Guidelines Eased – Will it make a difference?

7 Jan

On December 28th the Treasury department released updated guidelines to it’s supremely under performing HAFA program, after the California Department of Real Estate sent a letter to the Treasury outlining the specific problems and suggested solution for the embattled program.

Below are the old HAFA guidelines with the changes marked in red:

Eligibility

  • The property must be a principal residence
  • First loan was originated before 2009
  • The mortgage is delinquent or a default is reasonably foreseeable
  • Unpaid principal balance of the first lien must be no higher than $729,750
  • Borrowers monthly payment on first lien (including taxes and insurance) exceeds 31% of gross monthly income.  This is no longer an eligibility requirement.

Implementation Steps

  • Lender must determine that the borrower is eligible per above criteria.
  • The lender sends the borrower a “Short Sale Agreement” (SSA), borrower must sign and return this SSA in 14 days in order to to move forward
  • The lender must give the borrower an initial 120 days to sell the house, which can be extended up to 12 months if agreed to by the borrower
  • Within 3 business days of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the lender, including a copy of the sale contract and all addenda buyer documentation of funds or pre-approval/commitment letter from a lender all information on the status of subordinate liens and/or negotiations with subordinate lien holders
  • Within 10 days after submitting RASS and all required attachments the lender must approve or deny the request.  This time period is now 30 days.

Incentives to Borrowers and Lenders/Services

  • Lenders must release lien as well as release the borrower from all future liability.
  • Homeowners will qualify for relocation assistance after they complete a HAFA assisted short sale or after they surrender their deed-in-lieu of foreclosure. The amount of this incentive is $ 3000. The homeowner must complete all of the required forms and follow the process to completion to receive this incentive. Note that this incentive will likely be taxable income.
  • Loan servicers, those who service, or manage the loan for the investor (e.g. B of A, Wells Fargo, and Chase) will get up to a $ 1500 servicing bonus for completion of a short sale or deed-in-lieu.
  • Subordinate lien holders are paid up to 6% of their loan balance with a maximum of $6000.  The amount that is offered to subordinate lien holders is no longer capped at 6%, however, the maximum amount is still capped at $6000.
  • Investors will receive up to $2000 for those who allow a total of up to $ 6000 in short sale proceeds to be distributed to subordinate lien holders.

What does all this really mean?   Considering this program has only completed a total of 661 short sales since the program started on April 5th, I seriously doubt this minute changes will make much of a difference.

Removing the 6% cap on payments to subordinate liens could help a few more HAFA short sales be completed if for instance the 2nd lien is $60k or less, so that is a good thing, but it certainly will not be a game changer.

So before you are enticed to do a short sale with a dangling carrot of being paid relocation costs make sure that your Realtor understands this program in depth and can show you how this program will work for you.

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