The new HAFA program revamps the short sale market. In 2009, the Treasury Department introduced the HAFA program to provide a viable short sale option for homeowners who are unable to keep their homes through loan modification -- the Home Affordable Modification Program (HAMP). The goal is to reduce the number of foreclosures by incentivizing banks to pursue short sales instead of foreclosures. And yes, the devil will be in the details.
- Uses borrower financial and hardship information already collected in connection with consideration of a loan modification. A borrower will no longer have to submit a second package if they have already submitted a complete first package.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds). This is huge for both the borrower and the real estate agent as we’ll now know the minimum the bank will accept.
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
- Uses standardized documents, processes and timeframes/deadlines. There should be no difference now between the way, say, BofA handles a short sale as versus Wells Fargo.
- Mortgage servicers are required to make a preliminary decision regarding allowing the short sale within 15 days of receiving a borrower’s completed package! We’ll see if the lenders institute enough internal procedures to guarantee that this holds up.
- Provides the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis. In other words, the Treasury will match one dollar to each two dollars the first mortgagor gives the second mortgagor, up to $6,000. However, 2nd mortgages are still “the elephant in the room.”
- Requires loan servicers participating in HAMP (the loan modification program) to implement HAFA in accordance with their own policy and investor guidelines. (Remember, the lender’s main concern is not the borrower. It is the lender’s investor.) What constitutes investor guidelines? It includes factors like total potential loss, local market conditions, timing of foreclosure actions, etc.
Home Affordable Foreclosures Alternatives Program: Guidelines and Forms