hafa: sounds simple, but the devil is in the details

HAFA: Sounds Simple, But The Devil Is In The Details

- An Overview of the New Homes Affordable Foreclosure Alternatives

program -

Possible Advantages of a HAFA Short Sale    

• Standardize the short sale process

• Shorten the short sale process

• Release borrower from deficiency liability

• Forbid lenders from reducing the reasonable real estate commission

• Require lender to establish the minimum net requirement before the property is listed

HAFA TermsDIL: Deed-in-lieu

HAFA: Home Affordable Foreclosure Alternatives

Incentive Compensation: Payments designed to provide incentives for borrower and lenders to participate

RASS: Request for Approval of Short Sale

Relocation: Incentive payment to borrower

RMA: Request for Modification and Affidavit

Vacancy Date: Date that the borrower has to vacate the property

SSA: Short Sale Agreement

General Terms and Conditions- HAFA Outline -

Foreclosure Suspension

The lender may start the foreclosure or continue foreclosure but cannot complete the foreclosure

• Suspension lasts during the period of time that borrowers eligibilty and qualification is determined

• Suspended while waiting for SSA

• Pending sale based on RASS or DIL

Forbearance

Servicer cannot require monthly payment that exceeds 31 percent of borrower's gross monthly income

Policy may vary from lender to lender depending on their written policy made pursuant to their investor requirements

Satisfaction of Subordinate Liens

Inducements for subordinate lenders to participate:

• Up to 6 percent of unpaid loan from sale proceeds

• Total cap of $6,000.00

• First lender will recover up to 1/3rd of amount paid to subordinate lien holders

ARE THE INCENTIVES ENOUGH TO MOTIVE LENDERS?

Satisfaction of First Lien    

First lender must satisfy their lien within 30 days of receiving payment

• Will lenders bureaucracy be able to meet this standard?

• Is this "of record" or just sent to borrower?

Charging of Fees

Lenders cannot charge borrowers an administrative fee to proceed through the HAFA process, HOWEVER:

• Lenders can add the costs to the outstanding debt if the short sale or DIL falls through

• Lenders can require borrowers to waive reimbursement of escrow, buy down funds or pre-paid items

Mortgage Insurer Approval        

The HAFA program WILL NOT APPLY IF THERE IS MORTGAGE INSURANCE COVERAGE UNLESS THE MORTGAGE INSURER APPROVES.

• Will mortgage insurers approve?• • How long will it take to give their approval?• • How we borrowers know if mortgage insurance is involved?

Compensation Incentives        Borrower Incentives:Relocation assistance - $3,000

For short sale, paid out of closingproceeds; for DIL, servicer must pay at closing or, if no formal closing, mail within 5 days

Servicer Incentives: Servicer shall be paid $1,500 for successful short sale or DIL

Investor Incentives:Investor paid up to $2000, if they allow payment to subordinate lien holders

Subordinate lien holders must agree to release borrower from all liability (waive right to seek a deficiency)

Minimum Acceptable Net Proceeds

Servicer must determine minimum net proceeds acceptable to investor prior to approving borrower for HAFA program

• Servicer must develop a written policy consistent with investor guidelines

• Policy must be applied equally on all loans serviced for that investor

• Minimum net can be a fixed dollar amount, a percentage of current fair market vale or as a percentage of listing price approved by servicer

Increasing Minimum Net Proceeds    

After SSA is signed, minimum net proceed requirement cannot be raised until SSA termination date is reached or 120 days has passed, which ever is later

Any change to the minimum net proceeds must be documented by servicer

Borrower Qualification- The first step in the HAFA process -

Basic Qualifications

Borrower's principal residence

• First mortgage originated on or before January 1, 2009

• Mortgage delinquency or default is reasonably foreseeable

• Unpaid principal is $729,750.00 or less

• Borrower's total monthly mortgage payment exceeds 31% of borrowers gross income

Exceptions to Principal Residency Requirement

Property can be vacant for up to 90 days prior to the SSA, RASS or DIL agreement, IF

• If borrower was required to relocate at least 100 miles to accept new employment

• Transferred by current employer, and

• Borrower has purchase a one-to-four unit property 90 days prior to SSA, RASS or DIL agreement

It is extremely risky to vacate the property

Triggers to Eligibility Review    

Servicer's must consider eligibility within 30 days of the following:

• Borrower does not qualify for a Trial Period Plan

• Borrower does not successfully complete Trial Period Plan

• Borrower is delinquent on HAMP modification (at least 2 consecutive payments)

• Borrower requests short sale of DIL

If Borrower Did Not Go Through HAMP Program

Must determine eligibility under HAFA Consideration section of Treasury Directive

Borrower must submit a Request for Modification and Affidavit

Borrower must meet 31% of gross monthly income requirement

Borrower must experience a hardship

Notification of HAMP Eligibility

Servicer must notify orally or in writing that borrower is eligible for the HAMP program

• Borrower has 14 days to notify servicer that they want to proceed with a HAMP modification

Bankruptcy

If borrower is in bankruptcy the HAFA process can be started by:

• The borrower

• The borrower's counsel, or

• The Bankruptcy trustee

Service does not have to solicit borrowers in bankruptcy

Servicer must work with borrower to obtain necessary court approvals

Servicer must extend HAFA time frames to accommodate bankruptcy rocess

Determination of Whether Short Sale or DIL Will Be

OfferedStep Two of the Process

Borrower Solicitation and Response

Servicer must proactively notify borrower of SS and DIL options

• Must be in writing

• Borrower has 14 days to respond (verbally or in writing) and request HAFA consideration

Borrower should respond in writing so they have proof of request

Use of HAMP Documentation 

Servicer's can use financial information received through the HAMP process

HAMP hardship letter can be used for HAFA evaluation

The HAMP NPV model cannot be used to determine HAFA eligibility

Property Valuation

Servicer must obtain independent valuation of property

• May not require borrower to pay in advance cost of valuation

• May add to debt if short sale or DIL falls through

Each investor may have different requirements as to how property is valued. May be a BPO or an actual appraisal

Review of Title

Borrower must able to produce clear title

Servicer can obtain obtain title commitment to determine status of title but cannot require the borrower to pay unless short sale or DIL falls through

• If the transaction fails, cost can be added to the Borrower's debt

Notice to Borrower of HAFA Ineligibility    

Servicer must communicate denial to borrower in writing

Notice must include the following:

• Explanation of why SS or DIL not offered

• Toll free telephone number for borrower to call to discuss situation

There is no requirement as to how detailed the explanation is and it is doubtful that the person answering the consumer line will be able to explain it to the satisfaction of the borrower

The Short Sale Agreement

- Step Three of the Short Sale Process -

Short Sale Provisions

Sets forth the roles and responsibilities for servicer and borrower

Provides yey marketing terms

Sets out the duration of the SSA

Sets out the financial liability requirement and incentives

Warns of possible tax issues

You Must Review the Short Sale Agreement

This is the document that controls the transaction

The review must occur before the borrower signs and returns it to the servicer • Borrower has 14 days to sign and return it with a copy

of the listing agreement, information regarding subordinate liens and the HAFA Request for Approval of a Short Sale (RASS)

Key Terms of Short Sale Agreement

Notice that sale must be arms length and purchaser may not sell the property for at least 90 days after closing

The amount of monthly payment required by servicer during SSA

Agreement that lender will not complete foreclosure during SSA

Borrower agrees to provide all information and will sign all necessary documents

Borrower will cooperate with listing broker

Borrower will maintain property to facilitate sale

Borrower will work to clear any title issues

Key Marketing Terms

Property must be listed with licensed broker

List price or net proceeds approved by servicer for first mortgage

The amount of closing costs permitted to be deducted from gross sales proceeds as follows:

• By a dollar amount

• By a percentage of the list price, OR

• By a list by category of reasonable closing costs

What is a Reasonable Cost?

Reasonable and customary costs for the community in which the property is located

• Will lender really know what are reasonable costs for each community in the US?

• What happens when their definition of reasonable is different than your's?

• While this sounds good, it will only be helpful if the

lenders follow the spirit of the requirement

Duration of Short Sale Agreement

A fixed date not less than 120 days from the SSA's effective date

The term may be extended by servicer for up to 12 months

The SSA must set out the terms that the SSA can be terminated

Financial Liability/Incentives

Borrower is released from all liability to first lender

Notice that servicer will allow a set amount to be paid to subordinate lien holders in exchange for full release of borrowers liability

Borrower receives $3,000 relocation incentive upon successful closing

Will payment to junoir lien holders really be enough for them to release borrower from the debt - DOUBTFUL

Purchase Agreement Presented    - Step Five of the Short Sale Process -

Purchase Agreement Signed

Within 3 business days, borrower must submit:

• Completed RASS describing terms of PA

• Copy of fully executed PA

• Buyer's evidence of loan qualification

• Information regarding status and/or negotiations with junior lien holders

Approval/Disapproval of Sale

Within 10 days of receipt of all necessary documents, servicer must approve or disapprove

Servicer signs appropriate section of RASS and mails to borrower

Servicer must approve if net proceeds are met

Servicer cannot require reduction of real estate commission set out in SSA

Servicer may require closing to take place in reasonable period of time (not less than 45 days)

Alternative Request for Approval    

If borrower has PA before entering into SSA, borrower must submit Alternative RASS

Servicer must determine basic eligibility

Servicer must notify borrower of eligibility for HAMP program

Borrower has 14 days to proceed with HAMP program rather than short sale