The Treasury Department has recently released several updates to the Home Affordable Foreclosure Alternatives Program (HAFA). The changes will increase the number of eligible homeowners who may participate in the program and should expedite approvals:
- HAFA requires the property to be the principal residence of the homeowner, with limited exceptions. A homeowner's reason for relocation no longer needs to be connected to employment nor be of a certain distance from the property. Homeowners may have moved up to 12 months before the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (ARASS) or Request for Deed-in-Lieu (DIL) Agreement with documentation that the property was the homeowner’s principal residence prior to relocation and homeowner has not purchased a 1-4 unit property during the 12-month period prior.
- Servicers are no longer required to determine if the homeowner's total monthly mortgage payment exceeds 31% of monthly gross income. Homeowners will still be required to show a hardship. Servicers may still include a requirement in their HAFA Policies that homeowners provide updated financial information to evaluate homeowners.
- A servicer must complete and send an SSA to the homeowner no later than 45 calendar days from the date the homeowner responds to the servicer’s HAFA solicitation.
- Where a homeowner submits a short sale sales contract to the servicer before receipt of a SSA, the servicer is now required to communicate approval, disapproval, or a counter offer no later than 45 calendar days after receiving an (i) executed sales contract, (ii) ARASS, and (iii) a signed Hardship Affidavit.
- If the servicer is unable to respond within 45 calendar days, the servicer must send a written status notice to the borrower on or before the 45th calendar day, with written updates every 15 calendar days thereafter, until the servicer is able to provide an SSA, written notification that the homeowner will not be offered a short sale or a written response to the ARASS.
- Within 10 business days following receipt of a request for a short sale, ARASS or DIL, the servicer must send written confirmation to the homeowner acknowledging the request.
- HAFA will no longer impose a 6% cap on payments to each subordinate mortgage/lien holder. The $6,000 aggregate limit is still in effect. Each servicer must include in its HAFA Policy how subordinate mortgage/lien holders will be paid.
- Servicers have the discretion to approve sales to non-profit organization with the stated purpose that the property will be rented or resold to the homeowner, so long as all other HAFA program requirements are met.
The Treasury Department requires servicers to include a statement in the SSA (or ARASS form in ARASS transactions) that clarifies vendors of the servicer retained to assist the listing broker with the transaction may not be paid from the real estate commission or charged to the homeowner.
Fannie Mae and Freddie Mac are still considering whether to make these changes to their HAFA programs.
HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP (including HAFA) is also available online.
- Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
- Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- 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 standard processes, documents, and timeframes/deadlines.
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.
- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
REALTORS® continue to raise issues with NAR about shorts sales and the HAFA process. NAR has created an online mailbox for REALTORS® to share their experiences and provide specific examples of the problems they are facing with lenders. These emails will be collected and used by NAR in its ongoing discussions with lenders and the Treasury Department.
Please note this mailbox is for data collection purposes only, and not all submissions will receive a response. You may send an email detailing your experiences to HAFA@realtors.org.