The HAFA saga revised: Why the Feds don’t care if you get a short sale.
Just a heads up…this is longer than usual post due to the complexity of the subject matter. If you don’t read all of it, I won’t have hurt feelings. But I will tell you, if you or someone you know needs a short sale; you owe it to them and yourself to read the entire thing. I know, I hate long posts too. But sometimes we have to bite the bullet and do our part in helping who we can help. (If you do skim, at least read the bullet points. Pretend it is like college:)
And… we’re off!
HAFA (Home Affordable Foreclosure Alternatives) is a program created by the Federal Government to help underwater homeowners complete short sales, loan modifications, and the deed-in-lieu process. It’s a joke. Why? Because according to the numbers, the total allocation of funds since April 1st, 2010 (program start date) until now is a litter over $4,000,000 dollars. Seems like a lot, right? Wrong. Compared to an estimated $4 BILLION spent on all of the other programs, $4mil is a drop in the bucket. Here is the best part…with the $4mil spent on HAFA, the program has managed to help approximately 354 (according to stats provided by the CDPE group) people short sale their home, thus far. The short sale giant and royal pain, Bank of America, approved some clients of mine for a HAFA short sale (I know, amazing, right?), but because of the requirements, the second lien holder (Wells Fargo) wouldn’t accept the measly $6k from B of A and therefore disqualified my clients. Not a huge deal except it cost them an additional $5,000 to close and kept them from getting $3k to help them move. Do you have any idea how many of my clients cry during the short sale process? Almost all of them. When I asked Wells Fargo why they didn’t approve them, their comment was “The HAFA program requirements are just guidelines. We still get to decide to approve or disapprove.” Perfect. Thank you Uncle Sam.
Many of you may be thinking that less tax dollars are spent when these things aren’t approved…except, they are already spent. Despite the miserable failure of all of the recovery acts and all of the “Obama Programs” (to his fault, he gets credit for ones that aren’t even his even though they are referred to as his) and all of the government’s efforts to urge banks to participate in these programs, there is no accountability. If your leg is bleeding and someone gives you a bandage to use on your arm in the event of future injuries only, you are going to put it on your leg, unless there are consequences. This was exactly how the “bailout” funds were used by banks. They were given money to help make loans, but mommy, my leg hurts… they spent the money on their current bandage and not the new loans needed to help keep the housing market afloat. Hopefully this gives you some understanding as to why the government seems to care, but we it is lip service at best. If they did care, they put more than $4million into HAFA and add some accountability along with it. Now to the potentially good news…
The HAFA program is going through changes which are effective as of February 1st, 2011. Again, the changes are simply “guidelines”, but if it helps more than the 354, it is a good thing. Here’s the down and dirty on the changes:
Skimmers….Here are the bullet points…don’t think I don’t know you will be skimming these too…
- Monthly gross income requirement: Previously, the loan servicer for the bank had to verify the borrower’s income (let’s pretend they were looking at this for reasons other than why to deny the file). Also, another financial requirement was that your mortgage payment had to be greater than 31% of your monthly income or you were rejected from HAFA. The new guidelines remove this completely. However, the banks still see your income, know your monthly payment and have the freedom to reject your file. But if you are denied a HAFA short sale, you will feel better knowing you had a chance, even though your mortgage payment was 30.9% of your monthly income.Property Occupancy requirements: The property has to be your personal residence. Old standards: if you didn’t occupy the property within 90 days of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative RASS) or Deed-In-Lieu agreement (DIL Agreement), you did not qualify for a HAFA short sale. The exception to this was vacancy due to relocation for work AND such relocation caused you to move at least 100 miles from the subject property. Now, the property can be rented or vacant for up to 12 months prior to submittal the SSA, Alternative RASS, and DIL Agreement. In English, if your hardship forces you to move, you have up to a year to work on your HAFA short sale without fear of being denied a HAFA short sale (even if you have to rent the last house on the left in your block). This is a very, very good thing. A caveat…even though the HAFA program allows this, you may lose potential “owner-occupied” status and be faced with increased tax liability for the deficiency (I’m not an accountant and I definitely did not stay at a Holiday Inn last night, so consult with the appropriate experts:)
- 6% or $6,000 limits on payment to the second lien holder, whichever is less. The new and improved version allows for $6000 total to be paid to lien holders, regardless of how many exist. Example: You have a 1stmortgage and a 2ndmortgage or equity line of credit. You owe the 2nd lender $30,000. Previously, the 2ndwould only be allowed to receive a maximum of $1800. Now they can get $6,000. Phew, you can now pay more to the 2nd if they need it. I am going to take a wild guess at what 2nd lenders start asking for to settle. Hmmm… “Well, I’ll make you a deal.” says Mr. 2nd mortgage, “We’ll go away for…ummm…how about $6000? Do we have a deal?” Even though they would have taken $3,000 the day before and you could afford to give the additional $3,000 to that credit card judgment lingering over your head, you are out of luck. Personally, I don’t see this as an advantage unless you owe less than $60,000 dollars to a 2nd lender. But what do I know… I only see the 2ndlenders screw up short sales on a regular basis…
- The length of time lenders have to Issue a short sale agreement if the borrower is approved for a HAFA short sale 30 calendar days from the date you respond to the lender’s offering of a HAFA short sale, or, 30 days from the time you request a short sale. In theory, this is outstanding. In reality, on day 29, the already overworked and underpaid employee handling your file (and a hundred other files just like yours) cannot dot the i’s and cross the tees in 1 more day. Survey says…denied. I hope I’m wrong about this and it actually speeds things up. There is also a 30 day response requirement for the bank to communicate approval, disapproval, or counter offer on the alternative RASS. The moral of the story, get things started so you don’t have to keep a weary buyer waiting.
- Real Estate Brokerage Commission! Wahoo! This is by far my favorite part…only kidding. It is definitely my second favorite part and here’s why: #1 I am a real estate broker and a huge percentage of my transactions are short sales. They are by far the most challenging, stressful, emotional and frustrating. Not because they take work. Not because they take time and certainly not because so many fail. This excites me is because I know the banks will stop asking brokers across the country to break laws, brokers on the other side of a short sale transaction will be more willing to work at making the deal go, and the people who need short sales, really, really need them, will have a better chance of their property being considered by buyers.
- Deed-in-Lieu Programs: This is like alphabet soup for the soul…There are deed-for-lease (occupancy of your home on a rental basis) options and incentives and DIL (deed-in-lieu) incentives under the HAFA program…blah, blah, blah. Check the DFL to the DIL to the WTF (I’m skimming). In all seriousness, if you do have questions about this section, post a question or email me directly at email@example.com, and I will gladly help in any way I am able.
- Borrower notices: This is a VERY IMPORTANT because it has to do with deadlines. If the company managing your loan (your not so friendly and typically incompetent loan servicing company) determines you may be eligible for a modification under the Home Affordable Modification Program (the more acronyms the better) and will solicit you for HAFA, they must notify you verbally or in writing of the availability of HAMP. Once they do, you have 14 calendar days to contact the servicer via verbal or written communication (I’m not saying the person on the phone at the bank won’t listen…but they don’t and I would send a certified letter in the mail to the loss mitigation department, the office of the CEO, and to the Home Loan Department). Even if you or someone you know has tried a million times to modify their loan, if they get the paperwork from the lender, respond in the manner suggested (no guarantees or warranties, expressed or implied with the success of these letters…and no, I did not stay at a Holiday Inn last night..you already knew that so no assumptions please).
- Retroactivity: The new changes are not retroactive, period. However, the servicer may reevaluate files previously deemed “ineligible” for HAFA. Don’t quit, don’t quit, don’t quit. People at the bank get tired too. If at first you don’t succeed….
- Reporting: Previous…doesn’t matter. Now, doesn’t really matter. Gist: Servicers are supposed to report to a program administrator. These programs are still being developed (hence, no accountability), but banks (services) completing HAFA short sales will not be paid by the Feds until they report as per these vague and unwritten policies. This is actually something the servicers have to deal with and not you. Good luck, servicers! We’d help, but we still can’t figure out how to navigate your policies and procedures. Tell you what, when we do, we’ll call you.
- Compliance: Now, all servicers must actually keep real files with real documents (no rubber stamping allowed) as well as evidence regarding the property’s occupancy status. Gist: Banks and servicers have to act and are responsible for, all of things normal human beings do on a daily basis. This is a good thing, but why in the “H-E double hockey sticks” did this have to be added 10 months into the program? Really doesn’t matter.
Conclusion: Why would anyone try for HAFA? 2 reasons: 1.) All lenders must waive their right to any future deficiency judgment for any shortfall in the amount they receive from the short sale and what they actually owe and 2.) You can get $3,000 to help you move. If you know someone who couldn’t use the $3k, have them email me and I will gladly give them my address so they can mail the check:)
Thanks for reading. Hope this helps and good luck!
ps. For those of you who wish to view the previous HAFA guidlines, here you go: HAFA Excerpt from Making Home Affordable Handbook