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