Download Home Affordable Foreclosure Alternative (*HAFA*)

Home Affordable Foreclosure
Alternatives
(“HAFA”)
Eligibility and Implementation
Home Affordable Foreclosure Alternative
(“HAFA”) Eligibility and Implementation
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Implementation April 5, 2010
Borrower must meet eligibility criteria for HAMP
– First lien originated prior to 2009
– Delinquent or default reasonably foreseeable
– Unpaid principal no more that $729,750 (SFR higher for 2-4 units)
– Borrower total payments exceed 31% of gross income
Program subject to lender guidelines
– Severity of loss, local market conditions, timing of pending foreclosure,
borrower motivation and cooperation
Short Sale Agreement (“SSA”) sent to borrower if eligible
– Informs as to process
– At time of or prior to listing
Request for Approval of Short Sale (“RASS”)
– Sent after borrower contracts to sell
– Borrower submits for approval within 3 business days
HAFA
Improving the Short Sale Process
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Complements HAMP
– Viable alternative for borrowers who are HAMP eligible but unable to keep their
home
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Uses hardship information already collected
Allows for pre-approved short terms prior to listing (including minimum net
and costs)
Requires full release from future liability for first lien
– no cash, note or deficiency allowed
– Junior liens accepting HAFA must also release borrower from future liability
– May not require contributions from real estate agent, borrower/seller as a condition
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Standard process, documents and timeframes/deadlines
Provides financial incentives
– $3,000 for borrower relocating assistance
– $1,500 for servicers to cover administrative costs
– $Up to a $2,000 match for investors (senior) for allowing a total of up to $6,000
in short sale proceeds to be distributed to subordinate lien holders
(up to 6% cap per lien)
HAFA Timelines
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Within 3 business days of receipt of an executed offer
– Borrower or listing agent must submit the RASS to servicer
– Including (i) copy of sale contract and all addenda; (ii)buyer documentation
of funds or pre-approval letter; and (iii) all information on status of
subordinate liens and/or negotiations with lien holders
Within 10 business days after the servicer receives the RASS and requires
attachments
– Servicer must approve or deny the request and;
– Provide borrower with reasons for denial
Servicer may require reasonable closing date following approval of RASS
– Not sooner than 45 days from the date of the sales contract unless borrower
agrees
Servicer to follow local and state law with respect to release of its first mortgage
lien after receipt of proceeds
– If no deadline required servicer must release within 30 business days
– Investor must waive rights to seek deficiency judgment
– May not require a promissory note for any deficiency
HAFA Alternative Timelines
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Based on servicers written policy every eligible borrower must be considered
Servicers must consider eligible borrowers within 30 days of the borrower doing at
least one of the following:
– Does not qualify for HAMP
– Does not complete the trial period plan
– Misses two consecutive payments
– Requests a DIL or short sale
If servicer has not already discussed a DIL or short sale
– Written notice must be given
– Borrower has 14 calendar days to respond
• Orally or in writing
– Borrowers failure to respond ends servicers duty to extend a HAFA offer
If borrower appears to qualify for HAFA
– Servicer sends SSA which must be signed and returned to servicer within 14
calendar days
The SSA must give borrower 120 days to sell
– Extensions are permitted up to 12 months (if mutually agreed)
HAFA Rules on Commission
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The SSA specifies the amount of commission to be paid determined by the sevicer
– Servicer transmits to SSA to the borrower for consideration of terms
– SSA requires borrower to list with a real estate professional/broker (“agent”)
– Borrower and prospective real estate agent may negotiate the commission with
the servicer
– If borrower and agent agree to participate with servicer, both must sign the SSA
as agreement to the terms
– NAR is seeking member comments on any HAFA omission related issues
The rule is different if the borrower submits sales contract to the servicer for approval
before a SSA is executed
– An Alternative Request for Short Sale is submitted along with the offer
– The commission in this case is the amount that was negotiated in the listing
agreement
• Not to exceed 6%
– This policy recognizes the agent has already marketed
property and obtained a contract thus it is not appropriate to reduce the
commission below the previously negotiated amount
HAFA Rules on Commission
Important notes:
• At the urging of NAR, the Treasury Department rescinded
the 11.30.2009 policy that authorized the servicer to
reduce commission by a specified amount to pay a
vendor/negotiator hired to assist agent
• Neither buyers or seller may earn a commission in
connection the short sale, even if they are licensed
agents. No side deals to receive commission are
permitted
HAFA Required Clauses
• Cancellation clause
– Seller may cancel without notice and without paying
commission if property is conveyed to mortgage
insurer or mortgage holder
• Contingency clause
– Sale is subject to written agreement of sales terms
by mortgage holder or mortgage insurer
HAFA Incentive Payments
• Borrower Relocation Incentive
– $3,000 paid at closing
• Servicer Incentive
– $1,500 for administrative costs for short sale or DIL
completed under HAFA
– Investors may provide additional incentives
• Investor Reimbursement for Subordinate Lien Releases
– Up to $2,000 in exchange for allowing up to $6,000 in short
sale proceed to be paid to subordinate lien holders (up to
6% for any single lien, in order of priority not to exceed
$6,000.00 aggregate cap)
• Must agree not to pursue deficiency
HAFA Additional Contributions
& Like Treatment of Borrowers
• Junior lien holder are prohibited from seeking additional
contributions from agent or borrower a condition of releasing lien
and waiving deficiency
– Pursuant to Treasury Department guidelines updated March 26, 2010
• Treating similarly situated borrowers the same is required
– However not all borrowers will qualify for a short sale or DIL
– Participating servicers must have written policy
• Consistent with investor guidelines
• Describing basis for decisions
• May include factors such as severity of loss,
local market conditions, timing of pending
foreclosure and borrower motivation and
cooperation
HAFA and Foreclosure
• Servicer may initiate but not complete a foreclosure sale
– While determining borrowers eligibility for HAMP or HAFA
– Awaiting the return of SSA in the 14 day deadline
– During the term of a fully executed SSA while borrower
tries to sell
– Pending the transfer of ownership based on an approved
contract per the RASS or Alternative RASS
– Pending transfer of ownership via a DIL by the date
specified in SSA or DIL Agreement
HAFA and the DIL
• Subject to investor requirements
– Servicers may accept a DIL under HAFA
• Requires full release from debt
• Waiver of all claims
– Borrower must vacate property by a specific date
– Leave in broom clean condition
– Deliver clear and marketable title
– The same monetary incentives are available
More on HAFA
• Transaction must be arms length
– Borrower cannot list the property with or sell to a relative or
anyone with whom they have a personal or business relationship
• Amount of debt forgiven may be treated as income for tax purposes
• Possibly exempt under Mortgage Debt Relief Bill of 2008
(expires 2012)
• Servicer will report as settled for less than full
– Credit score will be negatively impacted
• Buyers may not reconvey the property within 90 days after closing
• Program ends 12.31.12
– SSA must be executed and returned to servicer no later than
12.31.12
HAFA Prohibitions
• Rebates from Realtors®
– Under HAFA no rebates are permitted the Request for Approval of
Short Sale (“RASS”) states neither borrower nor buyer will receive
any funds or commissions from sale of property.
• Arm-length Transaction
– Sellers who are real estate licensees may not list with their broker
nor anyone with whom they have a close business relationship
• Anti-fraud provision
• Avoids risk of seller profiting
• Payments to Subordinate Lien holders
– 6% or $6,000 is the limit to pay off subordinate lien holders
• It is a “hard cap” regardless of who pays the money
That’s it for now! Be Careful Out There
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