Short sales could be changing - Meet HAFA | Short Sale Update

Posted by Jace Stolfo on Tuesday, May 11th, 2010 at 3:33pm.

Traditionally, for a lender to consider a short sale, the seller has had to first secure an offer before finding out what the lien holder(s) would approve for a sales price. This way of handling short sales has been extremely inefficient as buyer & sellers have often had to wait 2-6 months for an approval causing many transactions to fail.

In an effort to address this problem the government has launched the Home Affordable Foreclosure Alternatives Program (HAFA).  This program is designed to allow eligible homeowners (the borrower) to work with their lender (the servicer) to determine the required net proceeds prior to putting their house on the market.  It will take some time to see if this program is successfully implemented but if it is it could have a very positive effect on the market.

Background In February 2009, the government launched the Home Affordable Modification Program (HAMP) designed to help borrowers stay in their homes by modifying their existing mortgages. Over 1 million homeowners have gotten help from this program (1) but there's still been a large gap of people it has not able to assist.

HAFA, which took effect April 5, 2010, was designed to compliment HAMP by providing an alternative for the borrower who are HAMP eligible but still unable to keep their home.  The two primary foreclosure alternative methods under HAFA is a short sale or deed-in-lieu of foreclosure.   HAFA offers financial incentives to the cooperating servicers as well as up to $3000 for borrower relocation assistance. Not all lenders are not required to participate in these programs but many do.  You can search for a list of participating servicers here.

Basic borrower eligibly requirements

  • Property must be primary residence
  • Amount owed on first mortgage must be less than $729,750
  • Difficulty paying mortgage as a result of increased mortgage payment or hardship (medical, etc.).
  • First lien originated before 1/1/2009
  • Monthly payment on first mortgage is more than 31% of gross income (principle, interest, taxes, insurance, and HOA dues)

Find out if you could be eligible.

Summary of HAFA short sale time-line

Please keep in mind HAFA is complex program with 45 pages of guidelines & forms. The following is a generalization of the process.

  • Determination of borrower eligibility by contacting the servicer. The servicer will want to up-to-date financial information on the borrower and will determine available options.
  • The servicer will determine fair market value (FMV) by ordering a Broker's Price Opinion (BPO) or an appraisal (if there's a second mortgage with another lender they will also have to approve).
  • Within approximately 30-60 days the mortgage servicer will send the borrower a Short Sale Agreement (SSA) with an acceptable offer price.
  • The borrower has 14 calendar days to return SSA (which is also signed by listing real estate broker).
  • The borrower is given 120 days to sell the house (may be extended if agreed to by borrower & servicer).
  • Within 3 days of receiving an executed purchase & sale agreement the borrower/listing broker submits a Request for Approval of Short Sale (RASS) to the servicer with required documents.
  • Within 10 business days of receipt of RASS the servicer must approve or deny the request.
  • Closing.

Please visit www.makinghomeaffordable.com for more information.

This information is subject to change without notification. No representation or warranty of any kind is made.

(1): www.makinghomeaffordable.gov/hafa.html (as of 5/11/10)

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