The HAFA (Home Affordable Foreclosure Alternatives)Program is coming and will take effect on April 5, 2010. It is essential that you know why it is not a good program and why, if you are a seller, you should throw that agreement in the trash! (this is the PG version of what I really feel you should do with it!!)
Before I go on, you need to know I have spent many hours in webinars and seminars which were ran by Wells Fargo, Bank of America, Freddie Mac and a few nationally recognized attorneys who specialize in short sales on top of plenty of time reading the guidelines and contract myself.
Most of what I will include below is my professional opinion based on the information given to me by the above parties. I feel it is important to share the information I learned to help you make a more informed decision. Ultimately, you need to take the guidelines and contracts (they call it the Supplemental Directive 09-09), which I've included below, to your own attorney (not just any attorney but one who specializes in short sales) and make an informed decision. Click here for a free list of questions you'll want to ask to be sure any professional you are seeking advice from actually has significant short sale experience.
Supplemental Directive 09-09 - First of all before I begin it is first important to point out how you know if you are even eligible for the program. You will need to meet the following criteria:
1. Your loan must be a non GSE loan - Loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (click on either of the previous links to find out if your loan is a Fannie or Freddie loan)
2. The servicer of your loan (who you make your payments to) must have executed a servicer participation agreement and related documents (SPA) withFannie Mae in its capacity as financial agent for the United States (as designated by Treasury) to participate in HAMP on or before December 31, 2009
3. A loan must be HAMP eligible and meet the other requirements to be eligible for incentive compensation under HAFA
4. Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options
5. Borrowers that meet the eligibility criteria for HAMP but who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or default on a HAMP modification should first be considered for other loan modification or retention programs offered by the servicer prior to being evaluated for HAFA
6. The property is the borrower’s principal residence - no second homes or investment properties
7. The mortgage loan is a first lien mortgage originated on or before January 1, 2009 - if you have a second or third mortgage or any other lien, they are not eligible. You will be responsible for getting any additional liens released on your own.
8. The mortgage is delinquent or default is reasonably foreseeable
9. The current unpaid principal balance is equal to or less than $729,750 - no jumbo loans
10. The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income
Now on to the Highlights, der, uh, I mean Lowlights:
1. Servicers, in accordance with investor guidelines, determine if a short sale or DIL (deed in lieu of foreclosure) is in the best interest of the investor, guarantor and/or mortgage insurer. It matters not what is in your sellers best interest but what is in the best interest of the investor/lender/insurance companies!
2. By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful - This is a huge gotcha and the biggest reason why I would not sign or enter into a HAFA agreement!
3. A fixed termination date of not less than 120 days, after which, the servicer may or may not agree to extend it for up to a year. - On the surface this does not seem all that bad unitl you read #4 below.
4. When the seller signs the SSA (HAFA short sale agreement) they are agreeing up front to a DIL (see #2 above). The investor is obligated to accept a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property - This means come day 120 the lender can exercise and enforce a DIL because the seller already agreed to it in writing. For those of you who don't know, a DIL is nothing more than a volunteered foreclosure. It will show on your credit as a foreclosure. This is not a benefit to you but it is to the lender because they get the property back in their possession faster thereby saving them money compared to making them go through a judicial foreclosure process.
5. Servicers may amend the terms of the SSA in accordance with investor requirements. - Talk about a sentence that opens the flood gates for lenders to do what they please!
6. Sellers will have to continue to pay a portion of their mortgage payment. They will be required to pay, during the term of the SSA, an amount that must not exceed 31% of the borrower’s gross monthly income. - Sellers who miss payments will be in default of the agreement and a DIL can be immediately pursued and enforced!
7. The offer price will be dictated by the lender using the 90 day "as-is" BPO value. - The servicer does not have to agree to additional valuation methods. - Sellers better pray they get an experienced BPO agent because if they over value your property and it does not sell within 120 days because it is overpriced, you just gave your property to the bank (see DIL #2 and #4 above)
Don't fret though as there is ONE good thing about HAFA. You can opt out of this program at any time! If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer. This means you can elect to perform what is now being referred to as a "proprietary" or "classic" short sale (or a non HAFA short sale).
If you have help from a qualified experienced short sale professional, they will know all you have to do is put in your short sale package cover letter the words, "THIS IS TO BE A NON HAFA SHORT SALE." They will also have many ways to help you avoid having a foreclosure on your record, avoid agreeing to a DIL, avoid agreeing to deficiency judgements and avoid signing promissory notes.
Bottom line, HAFA is great for the lender/servicers but not so much for you, the homeowner/seller. I predict HAFA will be another massive failure just as HAMP has been. This program will be a good fit for very few homeowners, if any at all.
The sooner you realize lenders control our politicians and they both falsely act as if their programs will work better for consumers while in reality they have figured out, in advance, how they will ultimately improve their own position and bottom line, the better off you will be! KNOW YOUR RIGHTS!
Disclaimer: While attempts have been made to verify information provided therein, the author does not assume any responsibility for errors, omissions, or contradictory information contained in this document. This document is not intended as legal, investment or accounting advice. The reader of this blog assumes all responsibility for the use of these materials and information.
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