Highlights of the HAFA program are as follows:

• Servicers have 10 days to approve or disapprove a request for small sale.
• Uses borrower financials and other documents already submitted for a loan modification.
• Allows borrowers to receive pre-approved small sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation help; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors (note holders).
• Caps proceeds to second lien holders at $3,000.00. (fascinating but I wonder at how those lien holders in the second position feel about this)

Requirements:

• Loan must be HAMP eligible – Services must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA small sale or Deed in Lieu (DIL);
• Property is borrower’s principal residence;
• the mortgage is a first lien and was originated before January 1, 2009;
• the loan must be delinquent or default reasonably foreseeable;
• loan amount limit is 729,750 (on 1 family units);
• borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
• Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days (problematic and I believe will diminish the potential of this program);
• Requires property to be listed with a real estate broker (I wonder who lobbied for this…so this has to be added on to the  servicer’s Minimum Net Proceeds and thus increases the cost to Purchaser)

While I admire the government’s attempt at allieviating the small sale log jam, as usual, they overstep their bounds. The American people are being questioned to yet again foot the bill for the banks’ irresponsible lending practices to the tune of $3,000 per closing.  Further, mandating that properties be listed with a real estate broker across the board is excessive and will, in effect, add to the buy price paid by the prospective buyer.  The arm’s length rule eliminates family attempting to save the home and the 90 day prohibition against resale will chill real estate investor participation which plays a major role in moving houses (I find this restraint on alienation to be disturbing as well and question its enforceability). Lastly, I question how many second lienholders are going to participate with their payments limited to $3,000.00.  Without their participation, it will be an exercise in futility as many of these homeowners have 2 loans.

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
3. Mortgage Assignments are Not the Real Estate Investor’s Dream!