Tuesday, March 9, 2010

HAMP, HARP and Now HAFA too?

Last week we mentioned that HAMP and HARP were members of the duet known as Making Home Affordable... well... the group has added a third band member and is now a trio.

The U.S. Treasury has announced the "Home Affordable Foreclosure Alternatives" (HAFA) Program which is designed to help struggling homeowners who are unable to qualify for a mortgage modification under the Home Affordable Modification Program (HAMP).

HAFA sings backup for HAMP, and provides incentives to servicers/lenders as well as borrowers to move forward with a short sale or deed-in-lieu of foreclosure.

Just as an FYI, in a short sale situation, the mortgage holder allows the homeowner to sell the property for a price short of the balance owed on the property’s loan.

The Center will be working on a more in-depth fact sheet over the coming weeks, but the basics of the program are as follows:
  • Should speed up the Short Sale process, as it uses borrower financial and hardship information that was collected when they applied for a HAMP modification.
  • Allows borrowers to receive PRE-APPROVED short sales terms (including minimum price accepted, proceeds to owner and real estate agents, etc.) BEFORE listing the property.
  • KEY: While in Minnesota, as a non-recourse state, first mortgage debt is fully released from future liability, under HAFA, subordinate lien holders that receive an incentive under HAFA must also FULLY RELEASE that debt as well.  This means that homeowners will not have to sign a promissory note or worry about a future deficiency judgment.  (NOTE: This is ONLY if the junior, or subordinate, lien holder receives money under HAFA.
  • Unifies documents, timeframes and deadlines to speed up the process.
  • Provides financial incentives for all parties.  $1,500 to the borrower for relocation assistance and $1,000 for servicers to cover admin costs, and up to $3,000 in short sale proceeds to be shared among subordinate lien holders.  In most cases subordinate lien holders see nothing from a short sale... and have been the reason that many short sales have fallen through.  It will be interesting to see if this incentive changes their attitude.  It will be especially interesting to see if junior lien holders will be willing to trade possible FUTURE JUDGMENTS for a rather small ($3,000) incentive today.
  • Requires ALL SERVICERS participating in HAMP to implement HAFA.
  • Goes into effect on April 5th, but lenders and servicers may begin sooner if they choose.  The program is scheduled to end on December 31, 2012.
  • Homeowners that are denied for a HAMP modification MUST receive a notification from their lender/servicer, in writing, of the HAFA option and give the borrower 14 days to respond orally or in writing.
Who qualifies for HAFA?

The homeowner must meet the basic eligibility criteria for HAMP
  • the loan must be on their Primary Residence (no investors or second homes);  
  • 1 to 4 units, as long as one of the units is the owner's primary residence;
  • First lien originated before 2009 Mortgage either delinquent or in imminent danger of default,
  • Unpaid principal balance no more than $729,750;
  • Borrower’s total monthly PITIA payment exceeds 31% of gross income.

BIG QUESTIONS still remain about the program:

  • Will homeowners that won't be able to hold on to their properties go through the extra effort to sell... or simply walk away.  "Post-HAMP-Denial-Strategic-Default"
  • What effect will this new program have on already-pressured sales prices?  Short Sales already put a downward pressure on local "comps".  What will happen when there is a FLOOD of HAFA-generated short sales?
  • What procedures are in place to prevent fraud?  Real Estate Agents are being called upon to help the bank determine the price they'll accept, and once the price is set, any offer over the minimum amount MUST be accepted by the bank.  This could be a magnet attracting fraud at all kinds of levels.

Feel free to respond in the comments!

1 comment:

  1. Here's my take on your BIG QUESTIONS:

    1. $1500 is more incentive than most borrowers get right now ($0) so any incentive will help - short sales are really for those who "want to do the right thing" or are looking to try and save as much of their credit as possible. For those that don't fall under those two situations, the $1500 is not likely to make much difference.

    2. Short sales have statistically been less caustic to a neighborhood in terms of price than a bank owned foreclosure so while a short sale isn't desirable, it is better than the alternative. Honestly, I wish every single house in foreclosure would go through a short sale vs. a foreclosure - we'd be out of this mess sooner and less painfully. Everyone loses when a house goes back to the bank. The sooner we address these fundamentally troubled loans the better.

    3. Fraud is possible in all of the current programs and I have no doubt it is happening. I think that if the bank were to enlist the professional services of an attorney or real estate agent to do an independent review of each proposed sale I think we'd do wonders to reduce the likelihood of fraud - right now there isn't an entity locally that is charged with protecting the bank's best interests in a short sale - the agents involved are serving the interests of the buyer and seller only. For compentent assistance though, they need to offer more than the $50 - $75 they're paying agents to do BPO's - this is a case where you get what you pay for.


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