Presentation on theme: "HAFA-2013 Chapter 1 1 Chapter 1: HAFA Defined As its name suggests, Home Affordable Foreclosure Alternatives is a federal program designed to give defaulting."— Presentation transcript:
HAFA-2013 Chapter 1 1 Chapter 1: HAFA Defined As its name suggests, Home Affordable Foreclosure Alternatives is a federal program designed to give defaulting borrowers alternatives to foreclosure. It is part of the Home Affordable Modification Program (HAMP), which is part of Making Home Affordable (MHA)—all of which are administered by the U.S. Department of Treasury. HAFA offers defaulting homeowners two options: 1.Short sale 2.Deed in lieu of foreclosure (DIL) It also provides financial incentives for mortgage investors and servicers—as well as homeowners—to pursue these alternatives.
HAFA-2013 Chapter 1 2 Chapter 1: HAFA Defined HAFA applies when loan modification is not a viable option. The homeowner may be unable to sustain a payment, may have obtained employment in a different location, or may simply no longer want the home. In these cases the next best alternative is a short sale, or if that is not possible, a deed in lieu—the two options offered by HAFA.
HAFA-2013 Chapter 1 3 1.1 HAFA in a Nutshell Basic features of HAFA: Complements HAMP by providing alternatives for borrowers who are HAMP-eligible but unable to keep their homes Provides preapproved short sale terms Releases borrowers fully from liability on all mortgage debt Provides up to $3,000 in relocation assistance for owners or occupants Uses uniform documents, standardized process and time frames Allows payment to secondary mortgage holders, up to maximum total $8,500 Allows payment of non-mortgage liens at servicer’s direction
HAFA-2013 Chapter 1 4 1.1 HAFA in a Nutshell Incentives for Servicers: $1,500 for each successful transaction Incentives for Investors: $5,000 maximum reimbursement for contributions to junior mortgage liens, on a two-for-three basis Restrictions: Sellers may not list property with, or sell to, relatives or anyone else with whom they have a close personal or business relationship. This must be confirmed by all parties in a HAFA affidavit. Buyers may not resell property for 30 days. Between 30 and 90 days after closing, no sale over 120% percent of the HAFA sale price is allowed.
HAFA-2013 Chapter 1 5 1.1 HAFA in a Nutshell Commissions Servicers must allow the commissions stated in listing agreements, as long as they don’t exceed six percent. Neither buyers nor sellers may earn commissions in connection with a HAFA short sale, even if they are licensed real estate brokers or agents. They also may not have any side deals to receive commission indirectly. Program Cutoff Dates To qualify, a HAFA request must be received by the servicer on or before December 31, 2015. The transaction must close on or before September 30, 2016.
HAFA-2013 Specialist Certification Chapter 1 6 1.1 HAFA in a Nutshell Which lenders are participating? All private lenders that received TARP funds are required to be HAFA participants. And all servicers that participate in HAMP are required to participate in HAFA as well. This does not mean that any loan handled by these entities is automatically HAFA-eligible. Servicers will determine that on an individual basis. FHA and VA loans are not candidates for HAFA. But each of these agencies has its own short sale program. The GSE’s—Fannie Mae and Freddie Mac—have a uniform short sale program called Standard Short Sale/HAFA II. It is modeled on HAFA, but has some important differences. For information on GSE short sales, visit fanniemae.com or freddiemac.com.
HAFA-2013 Specialist Certification Chapter 1 7 1.2 Eligibility The borrower must: Be experiencing financial hardship (confirmed by affidavit) Not have bought another home in the past 12 months Not have been convicted within the previous 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction. The loan must: Be a first mortgage less than $729,750 (on 1-4 units) Have been originated on or before January 1, 2009 Be in default—or default is “reasonably foreseeable”
HAFA-2013 Specialist Certification Chapter 1 8 1.2 Eligibility HAFA has no occupancy requirement. Loans in foreclosure or bankruptcy may still be eligible. Borrowers may have an unlimited number of loans approved. Property may be sold to a legitimate non-profit organization with the purpose of renting or re-selling to the borrower.
HAFA-2013 Specialist Certification Chapter 1 9 1.2 Eligibility Some borrowers have what are considered “pre-determined hardships” that do not require documentation: Mortgage over 90 days delinquent Credit scores of 620 or lower Other Restrictions: The property must not be condemned. The borrower must be a natural person (not a corporation, partnership, or other business entity).
HAFA-2013 Certification Chapter 1 10 1.3 The Process The HAFA short sale process may begin with a borrower solicitation letter sent by the servicer, describing the features of the program and inviting the homeowner to apply. The borrower has at least 14 days from the date of the notice to respond. (The servicer can choose to extend this period.) If the borrower does not respond affirmatively, the servicer has no further obligation to offer HAFA. Alternately, the borrower (or agent) may request HAFA proactively. Servicers may not solicit a borrower for HAFA until the borrower has been evaluated for HAMP or has declined the offer of HAMP consideration. HAMP-eligible borrowers who do not successfully complete HAMP modifications should be considered for other retention options before being evaluated for HAFA.
HAFA-2013 Specialist Certification Chapter 1 11 1.3 The Process The borrower must confirm financial hardship on either: 1.A Treasury Hardship Affidavit as required by the Dodd-Frank Act, or 2.A Request for Mortgage Assistance (RMA)—formerly known as the Request for Modification and Affidavit. (The RMA is the same form used by HAMP modification applicants.) Either of these forms may be referred to as a Hardship Affidavit. Upon receipt of a completed Hardship Affidavit the servicer must issue a decision and notify the borrower within 30 days.
HAFA-2013 Certification Chapter 1 12 1.3 The Process If a borrower with a “pre-determined hardship” requests HAFA, the servicer must issue a decision within 30 days—even without a Hardship Affidavit. But the servicer must receive the completed Hardship Affidavit before the sale can close. If a borrower requests HAFA who has not completed a Hardship Affidavit, and does not have a “pre-determined hardship”, the servicer must send written acknowledgement within 10 business days of receipt, along with a Hardship Affidavit. Upon receipt of the completed Hardship Affidavit, the servicer’s 30-day deadline applies. If the servicer cannot reach a decision within the 30-day period, it must provide a status notice to the borrower within that period, and updates every 15 days thereafter.
HAFA-2013 Specialist Certification Chapter 1 13 1.3 The Process When an eligible homeowner requests HAFA, the servicer must send a Short Sale Notice (SSN) or similar document describing the acceptable terms, within 30 days. (This form replaces the Short Sale Agreement or SSA.) Requirements may include monthly payments during the short sale period. Terms must remain in effect for at least 120 days. For borrowers who have already applied for HAMP modifications, the RMA and financial information provided in those forms can be used for the HAFA application. (The financial information may need to be updated.)
HAFA-2013 Specialist Certification Chapter 1 14 1.3 The Process Upon accepting an offer, the borrower or borrower’s agent should deliver all offer documents to the servicer within 3 business days. Upon receiving an offer from a HAFA-approved borrower, the servicer must notify the borrower, within 10 business days, of its approval, disapproval, or intent to submit a counteroffer. Any counteroffer must then be sent within 30 calendar days.
HAFA-2013 Chapter 1 15 1.3 The Process When a borrower sends an accepted offer before being approved for HAFA the servicer must respond with an Acknowledgement of Request for Short Sale (ARSS) or similar document, within ten days of receipt. If the servicer has already received a completed Hardship Affidavit from such a borrower, it must respond with a decision within 30 days. If not, the servicer must respond within 30 days of receiving a completed Hardship Affidavit. If the borrower has a pre-determined hardship, the servicer must convey a decision within 30 days of receiving the offer documents.
HAFA-2013 Specialist Certification Chapter 1 16 1.3 The Process The HAFA Affidavit Separate from the Hardship Affidavit, the buyer and seller must complete a HAFA Affidavit, affirming that the transaction is arm’s–length, facts about the property’s occupancy, and the accuracy of the HUD-1 Settlement Statement. In signing the affidavit, the parties also acknowledge limitations on future resale of the property.
HAFA-2013 Chapter 1 17 1.3 The Process Termination of Approval The servicer may revoke the borrower’s pre-approval if: The borrower’s financial situation improves significantly The borrower qualifies for a modification The borrower brings the account current or pays the mortgage in full A participating party fails to act in good faith A significant change occurs to the property condition and/or value There is evidence of fraud or misrepresentation A bankruptcy court declines to approve a sale under the terms of the SSN Litigation arises that could jeopardize the sale
HAFA-2013 Specialist Certification Chapter 1 18 1.4 The DIL Option Deed-in-Lieu When a deed in lieu is negotiated, the borrower surrenders title to the property to the mortgage investor, avoiding the stress and credit harm of foreclosure. With a HAFA deed in lieu, the borrower or occupant is eligible for $3,000 in relocation assistance, just as with a short sale. A deed in lieu is usually not feasible when a property has more than one mortgage. Since it normally involves a simple deed transfer and no exchange of funds (other than the seller’s relocation allowance), there is little incentive for junior lien holders to cooperate. Thus, the junior liens remain and follow the property. In a foreclosure, junior liens are wiped out. So in these cases, it is more advantageous for the first mortgage holder to foreclose than to accept a deed in lieu.
HAFA-2013 Specialist Certification Chapter 1 19 1.4 The DIL Option Requirements for a HAFA deed in lieu: Marketable Title. The borrower must be able to convey clear, marketable title to the servicer or investor. Written Agreement. The conditions for acceptance of a DIL must be in writing and signed by both the servicer and borrower. Vacancy Date. The DIL Agreement must specify the date by which the borrower must vacate the property. It must not be less than 30 calendar days from the termination date of the SSN or the date of a separate DIL Agreement, unless the borrower voluntarily agrees to an earlier date or a lease-back is arranged.
HAFA-2013 Certification Chapter 1 20 1.4 The DIL Option Like a short sale, a deed in lieu has distinct advantages and disadvantages compared with foreclosure. Here is a summary: Advantages: $3,000 relocation allowance Less emotional stress Smoother legal process Qualify more quickly to buy another home (as little as two years under new Fannie Mae guidelines, vs. three or more after foreclosure) Disadvantages: Possible tax liability on forgiven debt Credit is still damaged, though usually less than after foreclosure Highly unlikely with multiple liens
HAFA-2013 Certification Chapter 1 21 1.5 GSE Short Sale Program Fannie Mae and Freddie Mac are government-sponsored enterprises (GSE’s) which together own or guarantee most of the mortgages in America. In 2008 both entities came under the conservatorship of the newly-formed Federal Housing Finance Agency (FHFA). Fannie and Freddie introduced their own versions of HAFA in 2010, but later changed direction and substituted a new unified short sale program for both entities.
HAFA-2013 Certification Chapter 1 22 1.5 GSE Short Sale Program In 2011 the FHFA announced a Servicing Alignment Initiative “to establish consistent policies and processes for the servicing of delinquent loans owned or guaranteed by Fannie Mae and Freddie Mac.” In keeping with this initiative, the FHFA announced a unified short sale program for both GSE’s on August 21, 2012. Designated “Standard Short Sale/HAFA II,” this program was modeled on HAFA, but with some important distinctions that reflect Fannie and Freddie’s interests as investors. Importantly, the new guidelines signal the GSE’s withdrawal from the HAFA program per se. Beginning in 2013, all GSE short sales were routed through this new process.
HAFA-2013 Certification Chapter 1 23 1.5 GSE Short Sale Program Features of the Standard Short Sale/HAFA II Program: Hardship Borrowers with eligible hardships may complete short sales even if they are current, and without further approval from Fannie or Freddie. Eligible hardships include: Death Divorce Disability Distant employment relocation (50 miles or more away) Borrowers who are severely delinquent or have low credit scores can receive short sale approval with a minimum of documentation. This is similar to the “predetermined hardship” provision in Treasury’s HAFA program.
HAFA-2013 Certification Chapter 1 24 1.5 GSE Short Sale Program Borrower Concessions Borrowers with sufficient income or assets may be required to make contributions or sign promissory notes as a condition of the short sale. In return, the GSE’s will waive the right to pursue deficiency judgments. This is an important departure from the HAFA program, which prohibits borrower contributions or promissory notes. Accommodation for Active Military Service members who are being relocated will be automatically eligible for short sales, even if they are current on their existing mortgages, and will be under no obligation to contribute funds to cover the shortfall. Foreclosure Timelines The GSE’s now provide uniform guidance for interactions between borrowers and servicers when a foreclosure sale is imminent.
HAFA-2013 Certification Chapter 1 25 1.5 GSE Short Sale Program Junior Liens Aggregate payments to junior lien holders are limited to $6,000. This represents a more stringent approach than HAFA, which caps payments to junior mortgage holders at $8,500, and allows payments to non-mortgage lien holders at the servicer’s discretion. More specific guidelines are itemized in the GSE’s directives, available at fanniemae.com and freddiemac.com.
HAFA-2013 Certification Chapter 1 26 Chapter Summary Elements of HAFA: Part of HAMP Applies to HAMP-eligible borrowers Offers short sale or deed in lieu Provides preapproved short sale terms Offers full release of liability on all mortgage debt Uses standardized documents, processes & timeframes Financial Incentives $3,000 for borrower relocation assistance $1,500 for servicers Up to $8,500 payment to junior mortgage liens Sales commissions allowed, up to 6% 2-for-3 reimbursement to 1st mortgage holder for payment to junior liens—up to $5,000 Eligibility Requirements: Financial hardship First lien originated before 2009 Unpaid principal balance up to $729,750 (1-4 units) Restrictions Must be arm’s-length No resale within 30 days Must not be condemned Must be owned by a natural person Resale price limited to 120% 30-90 days after close Submission Process Seller submits completed Hardship Affidavit Servicer sends SSN within 30 days Seller sends accepted offer Servicer must approve within 10 days Alternative Process Seller sends accepted offer Servicer sends ARSS within 10 days Upon receipt of completed Hardship Affidavit servicer must issue decision within 30 days GSE Short Sale Program Borrowers with hardship approved even if current Minimum documentation for self-evident hardship Contribution or promissory note may be required GSE’s waive deficiency judgment $6,000 for all junior liens Automatic approval for relocating military