HAFA


Effective November 1, 2012, there are new guidelines for all Fannie Mae and Freddie Mac short sales.  The new program, dubbed the Standard Short Sale /HAFA II requires Fannie and Freddie servicers to manage short sales under one uniform process.  It is anticipated that this new streamlined process will make short sales faster, easier and more accessible to underwater borrowers.   Under the new program:

  • Homeowners do not need to be delinquent on their mortgage payments if they meet other hardship criteria.
  • Deficiency judgments will be waived in exchange for a cash contribution from certain qualified homeowners.
  • Military personnel who are relocated will automatically be eligible.
  • Up to $6,000 will be offered to  2nd lien holders to speed the process.

The new hardship criterion includes:

  • Death of a borrower or  co-borrower
  • Divorce
  • Unemployment
  • Disability
  • Relocation for a job

The good news is that this program should allow more homeowners to participate in a short sale and get out of a negative equity situation, even if they are not delinquent on their mortgage.  The bad news is that even with no missed payments; their credit will suffer as they will have settled their mortgage debt for less than the amount owed.  In the world of credit reporting, a short sale is a short sale, whether or not there was ever a missed payment or a Notice of Default recorded.

Overall, HAFA II should allow more homeowners to take advantage of a short sale and standardized processing can’t help but improve the whole experience for everyone involved.  As a Realtor who lists and negotiates short sales, I welcome anything that will streamline the often cumbersome and lengthy process.

If you live in San Diego County and are considering a short sale, or if you’re an agent looking to out-source negotiation, please call me for a confidential no-obligation consultation.

I was part of a Bank of America Webinar today during which they outlined the benefits of their new Cooperative Short Sale Program and took questions from way too many clueless agents.  To listen to the speaker, this new program is the greatest thing since sliced bread, but I think that remains to be seen.

The key difference between this new program and the traditional short sale program is that much of the work on the bank’s side that usually doesn’t begin until after an offer is submitted, can now begin before the home is even put up for sale.  This means that a homeowner with a B of A 1st mortgage who recognizes that a short sale is his/her best option can work with their Realtor and get the process started before actually marketing the property.  B of A will complete the valuation process and let the Realtor and homeowner know the suggested list price prior to listing, in theory speeding up the approval process once a qualifying offer is submitted.  In fact, with the review of the homeowner’s financials and the valuation completed prior to marketing, B of A is promising a response to an offer in 10 days.

The program is modeled to a large degree after the HAFA program, and like HAFA, the homeowner may qualify for a relocation fee in the amount of $2500, (HAFA is $3000).   Approval in the cooperative program would also halt foreclosure action and give the homeowner 120 days to find a buyer.  Unlike HAFA, the Bank of America cooperative Short Sale Program can apply to non-owner occupied properties.

While this all sounds pretty rosy, it was not exactly clear what happens when there is a 2nd mortgage held by another bank.  Are we to believe that they’ll speed up their approval processing to keep pace with B of A?  Ha!  And what about deficiency judgments?  In a HAFA short sale the bank has to agree not to pursue a deficiency judgment, promissory note, or the collection of funds from the borrower.  But in the B of A program, there are no such promises and the speaker today danced around discussion of deficiencies by suggesting that we all investigate the laws in our own states.  Pretty vague to me, and it has been suggested that B of A requires such in-depth financial information so that they better know who to target for deficiencies.

While I am hardly a fan of Bank of America, I’ll keep an open mind…but I’m watching closely.  I somehow just don’t trust that protecting the homeowner is their #1 priority.

For information about a short sale in San Diego County please don’t hesitate to contact me directly.

Here is an update on this post!

It’s no secret that the government’s short sale program, HAFA, has had less than stellar results.  The Home Affordable Foreclosure Alternative program was started in April 2010 to provide alternatives to foreclosure when a loan modification wouldn’t work.  Through September, the program has processed only 342 short sales or deed-in-lieu transactions.  This number is ridiculously low considering that third-party technology provider Equator, who provides the platform for processing short sales for several banks, including B of A, reports that over 117,000 HAFA short sales were initiated in the period from April – October.   What happened to all of those transactions?

Mortgage servicers and Realtors have complained about the confusing rules and the stringent requirements for participation that have made it difficult to complete a transaction.  In December the California Association of Realtors sent a letter to government regulators complaining about the program and requesting specific changes to expedite approvals.  The government responded quickly and issed a directive on December 28 that made some significant changes to the program.  Here are a few of the highlights:

  • Servicers are no longer required to verify that an applicant’s mortgage payment exceeds 31% of their gross income, although a hardship must still be demonstrated.
  • Applicants do not need to be currently living in the home so long as it was their principal residence in the last 12 months.
  • Payments to subordinate lien holders are no longer capped at 6%, but have an aggregate cap of $6,000.
  • Servicers participating in the HAFA program will be required to either approve, disapprove or provide a counter to any complete short sale application and purchase offer within 30 days.
  • Servicers who pay contractors to assist in processing the short sale cannot charge those fees to the borrower or deduct it from the real estate commissions.

Will these changes improve the approval rate?  Probably, but the key will lie in how well the banks comply and the rules are enforced.