New rules that streamline the HAFA Short Sale Program and allow some homeowners to complete a short sale with no financial documents are now in force.
The guidelines, which kicked in Feb. 1, also shortened the decision timeline to “essentially 30 days” for the Home Affordable Foreclosure Alternatives Program, which provides a $3,000 relocation incentive for some qualified homeowners.
A short sale occurs when a home is sold for less than is owed on it and the lender agrees to discount the loan payoff.
Major changes to the HAFA program include:
PRE-DETERMINED HARDSHIP: Borrowers who are more than 90 days behind on their mortgage and have FICO scores below 620 are now classified as having a “pre-determined hardship.”
Homeowners who meet the criteria must complete a Hardship Affidavit to be considered for HAFA approval but will not be required to provide paystubs, bank statements or tax returns.
QUICKER ANSWERS: Servicers now have essentially 30 days to approve, reject or counter a HAFA short sale offer.
For pre-approved HAFA short sales, in which the applicant has been prequalified for the program:
- If an offer meets the minimum price and terms of a pre-approved HAFA short sale, the servicer must issue the approval within 10 business days of receiving the offer.
- Offers less than the pre-approved terms must be acknowledged with an approval, rejection or intent to counter-offer within 10 business days of receipt, and the counter-offer must be generated within 30 calendar days.
- Servicers can accept lower offers “so long as the proposed sale is in the best interests of the Investor,” according to the guidelines.
For offers sent without a pre-approval:
- The bank must acknowledge receipt of a complete offer within 10 business days.
- If the seller is more than 91 days delinquent on their mortgage and has a credit score less than 620, the servicer must issue a short sale approval, rejection or counter-offer within 30 calendar days.
- For borrowers who are not three months behind and/or have credit scores above 620, the 30-day clock doesn’t start until the servicer receives a Hardship Affidavit completed by the seller and the buyer.
- In either case, the servicer can extend the 30-day window but must give written updates every 15 days until it reaches a resolution.
EVERYONE SIGNS OFF: The buyer in a HAFA short sale is now required to sign a new Hardship Affidavit in which they affirm the sale is an “arm’s-length transaction” and they are not giving the seller any compensation.
Previously, only the seller and real estate agents were required to acknowledge the arm’s-length requirement.
LENDER BENEFIT: To make the program more attractive to the banks, the U.S. Treasury more than doubled its reimbursement to the lender for permitting part of the sale proceeds to pay junior lienholders.
First-mortgage lienholders now receive up to $5,000 of the $8,500 that it allows to a junior lien, such as a home equity line of credit or other second mortgage.
That amount increases from the previous maximum of $2,000.
SHORT SALE LEASE BACK: The new rules add the following specific language to the Making Home Affordable handbook:
“The terms of any sale approved by the servicer that provides an option for the property to be sold to a non-profit organization with the stated purpose that the property will be rented or sold to the borrower.”
In March 2011, Treasury first referred to this groundbreaking initiative in Supplement Directive 11-02, which introduced the concept to servicers.
Servicers subsequently did nothing to implement the strategy in their HAFA guidelines. Other companies inspired by Treasury’s foresight recently launched programs in California. (Do you qualify for the new Short Sale Lease Back Program? Call 951-778-9700 today for an interview.)
The new rules smoothed the process for this type of short sale.
INVESTOR PURCHASES: HAFA previously prohibited a buyer form reselling a home within 90 days of a HAFA transaction. That time restriction has been decreased to 30 days, though a resale for 20 percent more than the previous purchase price would have to wait at least 90 days.
The new rules – which do not apply to loans owned or backed by Fannie Mae, Freddie Mac, the Veterans Administration (VA), the Dept. of Agriculture’s Rural Housing Service or the Federal Housing Administration (FHA) – were part of the Treasury’s Supplemental Directive 12-07 announced in December.
In November, mortgage giants Fannie Mae and Freddie Mac announced similar changes when they created a unified short sale program for all government-sponsored enterprises.
Want to know if you qualify for the new HAFA Short Sale Program? Call us today at 951-778-7900 to set up a 10-minute interview.
HAFA Short Sale | Relocation Incentive | Short Sale Lease Back