HAFA Releases Another Update for 2011

The Home Affordable Foreclosure Alternatives Program 2011 Update

On December 28, 2010, the Treasury Department released another update to the Home Affordable Foreclosure Alternatives Program (HAFA). Not surprisingly, the Treasury Department was under the gun as a result of the program’s poor overall performance.  According to the Congressional Oversight Panel (the Troubled Asset Relief Program watchdog) through 2010, only $4.3 million  has been used for HAFA resulting in roughly 661 closed HAFA short sales since the program launched.

The changes will increase the number of eligible borrowers who may participate in the program and should expedite approvals.  Servicers must implement the changes by February 1, 2011.

The Key changes are:

1. A borrower’s reason for relocation no longer needs to be connected to employment nor be of a certain distance from the property. Borrowers may have moved up to 12 months before certain dates in the HAFA process but may not have purchased another home.  Vacant or rented properties will no longer be disqualified from HAFA so long as the property was the seller’s primary residence within the last 12 months.
2. Servicers are not required to determine if the borrower’s total monthly mortgage payment exceeds 31% of gross income. Borrowers will still be required to show a hardship.  However, investor may still require it.
3. Servicers are now required to communicate approval, disapproval, or a counter offer no later than 30 calendar days after receiving an (i) executed sales contract, (ii) Alternative Request for Approval of Short Sale, and (iii) a signed Hardship Affidavit.
4. If an unsolicited borrower requests HAFA, the servicer has 30 calendar days to determine the borrower’s eligibility and, if eligible, send the borrower the Short Sale Agreement.
5. Payouts to subordinate liens are no longer limited to 6% of the subordinate liens outstanding principal balance.  The Max aggregate payout is still capped at $6,000.  It is now up to the investor to determine their allowable %.
6. Real estate commission cannot be cut to less than 6%, even when pre-applying for the program.  This was a major negative previously.
7. The update also clarifies vendors of the servicer may not be paid from the real estate commission. Hooray for this change!  Many of you have dealt with AHMSI who was guilty of this where they outsourced their servicing and would make the Realtors pay the 1% to the company they outsourced to forcing the Realtors to accept 5% or sometimes less or they won’t approve the short sale.

So, will these changes improve HAFA?  Time will tell.  But with fewer than 700 approved short sales so far, these changes can only help!

Click here to download the updated Home Affordable Foreclosure Alternatives Program – Policy Update.