On April 5, 2010, the U.S. Treasury Department initiated a new federal program known as HAFA (Home Affordable Foreclosure Assistance Program.) With a new Supplemental Directive issued December 28, 2010 for changes taking place February 1st, 2011; this program provides vital protections for the defaulting homeowner.
With either the HAFA short sale or a deed in lieu of foreclosure, the servicer may not require a cash contribution or promissory note from the borrower and may not pursue a deficiency judgment against the borrower. HAFA is not available to all borrowers and it's important that homeowners educate themselves in order to make an informed decision. Here are some facts regarding the HAFA program:
- As of August 1, 2010, Fanny Mae and Freddie Mac have rolled out their own HAFA-like programs, which are very similar to the non-GSE mortgage (Government Sponsored Enterprises) guidelines.
- HAFA does not apply to loans insured by Fannie Mae or Freddy Mac, but now these loans have their own HAFA-like program, very similar to the non-GSE guidelines.
- HAFA does not apply to FHA or VA loans. FHA and VA have their own short sale program, which is substantially different from the HAFA guidelines.
- HAFA is not a law or legislation. HAFA is simply written guidelines for the banks to follow. It is not mandatory, and bank participation is voluntary. However, banks which have accepted TARP funds and are participating in the HAMP program must also offer the HAFA alternative. For a list of banks and servicers who are in the HAMP and HAFA programs.
- While many bank servicers have agreed to participate with HAFA, it’s important to understand that the bank servicer typically does not own your loan. It is ultimately the decision of the investor who does own your loan whether or not to participate with HAFA. Just for clarification, your loan servicer is the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan. (Servicers are typically banks such as Bank of America and Wells Fargo). The majority of residential mortgages are owned by groups of investors (i.e. Fannie Mae, Freddy Mac) and these investors hire loan servicers (banks) to collect the money from homeowners and send it to the investor.
- If you have a second mortgage, these lenders are not obligated to participate with HAFA, and to what degree. The maximum allowed payoff for all junior or subordinate liens is $6000. Jr. Liens are a particularly tricky issue to negotiate during a short sale, and a primary reason to pursue a short sale in Utah.
- Jr. Liens are now required to give a lien release and full release of borrower liability in return for payment under the program.
- If the 2nd lien is with the same bank as the 1st, the 2nd will probably cooperate with the HAFA program guidelines.
- Banks can require the borrower to pay all - or - a portion of the mortgage payment during the HAFA approval process. This is not the case with a non-HAFA short sale.
- HAFA does not apply for investment properties, vacation homes, commercial properties, or tenant occupied properties.
- If you have moved out of the home for less than a year, and have not purchased another property, you may still be eligible for the HAFA program.
- A HAFA short sale does not stop the foreclosure process vs. a traditional short sale, where the foreclosure may be stopped with an executed contract between buyer and seller.
- If the home has already been scheduled for a Trustee (Foreclosure) Sale, you cannot start a short sale under the HAFA program. This is not the case with a non-HAFA short sale.
- You must live in the house, have bought it before January 1, 2009, and owe less than $729,750.
- Under the revised guidelines coming into effect February 1st, there is no longer any income qualifying hardship for consideration for HAFA short sale, or a need to provide IRS form 4506-T, request for tax filing information. The borrower must provide a signed hardship affidavit and fill out an RMA After requesting a HAFA short sale, the homeowner has 14 days to get the information package back to the bank, or the bank no longer has to consider a HAFA short sale.
- Under the revised guidelines, the bank no longer has the right to evaluate the property and deny a short sale under net present value formula.
- The servicer must complete and send the short sale approval to the borrower within 30 calendar days.
- Under the revised guidelines, within 30 calendar days of receipt of an executed sales contract and request for the HAFA short sale, the servicer must communicate approval or disapproval of the sale, or provide a counter offer.
- The short sale agreement may provide an option for the borrower to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for the borrower to repurchase the property at some future time. Such transactions are eligible for financial incentives under HAFA, so long as all other program requirements are met. At the discretion of the servicer in accordance with investor guidelines, the borrower relocation incentive may be paid either upon the successful closing or at a future time when the borrower vacates or repurchases the property.
While the HAFA program is a good start the fact remains that not all borrowers or their mortgages will qualify for HAFA (based upon the above criteria.) Banks are struggling to implement HAFA, Additionally, the HAFA program is a national program, with the same criteria being applied to all cities. HAFA does not take into consideration the specific needs of Utah residents. In addition, many borrowers invested in rental homes during the upturn, and HAFA does not address this issue at all.
Previous programs offered by the federal government include the HOPE NOW and MAKING HOME AFFORDABLE programs which were failures by any objective measure. These programs promised homeowners that their mortgage could be modified. Additionally, these programs promised families that they could "keep their homes." We now know that less than .03% of residential mortgages were actually modified under the HOPE program, and these programs were a disaster for homeowners.
The government's primary concern is to fix the economy, and the banks primary objective is to fix their own financial situation.
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