Finally there is a glimmer of light at the end of the tunnel
In 2009, the Treasury Department introduced the HAFA program to provide a possible option for homeowners who do not qualify to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012. At this time there is no indication whether or not the program will be extended. Insiders hope that by the time December 31, 2012 rolls around the housing market will have stabilized. The jury is still out on that optimistic view.
The Home Affordable Foreclosure Alternatives program may actually achieve some success where it’s predecessors have failed. It was created as a result of the SNAFU (situation is normal, all fouled up) that existed in the market when the once in a blue moon short sale became the norm in many markets.
HAFA will not keep homeowners in their homes. It’s designed to make the process for getting out of an unaffordable home, without going through foreclosure, more predictable and efficient for all parties involved in the deal. Prior to the announcement of this program, short sales were more hopeful thinking than reality. The market was glutted (and to a large degree today) with homes that were “for sale” in which the lender did not have a clue.
Members of the industry are optimistic that HAFA may succeed because the plan removes several impediments to the widespread use of prior programs and provides incentives to all of the players in the workout mess. To those of us (Tudela MacArthur included) that have been publicly stating that the old way does not work, there is hope.
Here are some examples of the program that will make a difference:
- homeowners can receive $3,000 toward relocation costs,
- mortgage investors and loan servicers can receive incentives of $1,500 per loan
- real estate agents’ undiscounted commissions are honored
- junior lien holders can receive up to $6,000 in exchange for releasing their liens and agreeing not to pursue borrowers for deficiency judgments.
These are major changes it what used to be considered business as normal when nothing was resolved for 9-12 months. The time lag, effectively removed homes in a “short sale” status from the possible purchase by any home owner that was under a time restraint for making a move. It finally dawned on someone that if a buyer could not be sure they could move into a home in a specific time frame, the home was not truly available. That was not just a short sale…it was short-sighted.
In reality, homeowners in trouble, attempting to move on, were forced to have strangers trek through their home on a regular basis with little if any hope for actually selling. Buyers were forced to view homes that were not really available to purchase in a timely fashion. Listing agents were forced to list and hope that if a contact were submitted, the sale could actually be consummated.
Under the old system, once an actual contract for purchase was submitted, then it would be forwarded to the lender(s) for approval. You see, the lender had no knowledge the property was for sale prior to receiving the offer. Plays scripted in the sand during a pick up football game had a better chance of success.
The lender could take whatever time it wanted to approve or deny the sale. In reality, the process often took many months and in the end, most sales were not approved. Lenders would ignore tort law and attempt to alter the terms of listing agreements as well as contracts of sale. Using the same attitudes that created the collapse of the system, lenders ignored law and showed disdain for those in need.
In most cases, buyers could not wait endlessly for approval. Real estate agents could not continue to service listings that were not going to sell. Homeowners lost hope and the market slowed to a standstill.
If an approval was received from a lender, it usually was encumbered with unreasonably short deadlines. The buyers had contact their lenders obtain new loan approvals. If the loan terms had changed, new regulations required a waiting period for the buyers review before the buyer had to accept the terms. Title attorneys had to rush updated title searches, surveys or other lien searches in order to make sure the transaction closed before the approvals expired.
HAFA was created to provide a solution for homeowners who could not qualify for a permanent loan modification and could not afford to remain in their homes. HAFA provides a system for an orderly process for the short sale to be completed using standardized documents and enforceable deadlines. It should not be overlooked that it also provides a way for homeowners to use a deed-in-lieu of foreclosure solution if the short sale attempt is not successful.
To qualify for a HAFA short sale or deed-in-lieu:
- the mortgage must be for a borrower’s principal residence;
- the loan balance may not be more than $729,750;
- the borrower must have incurred some hardship like a medical emergency or a drastic reduction in income;
- the loan must have closed prior to Jan. 1, 2009;
- first-mortgage payments (including property taxes, insurance and mandatory homeowners or condo fees) must be more than 31 percent of current gross household income.
For a deed-in-lieu arrangement, borrowers must also be able to deliver clear and marketable title to the home, free and clear of all liens or encumbrances and leave the home in “broom clean” condition. This may include resolving a home equity line or second mortgage.
Homeowners are given a minimum of 30 days to vacate the home from the date the short-sale agreement expires or the date of the deed-in-lieu agreement.
The lenders’ participation in HAFA is voluntary, not all loans will be eligible. All loans owned or guaranteed by Fannie Mae or Freddie Mac are eligible for HAFA. You can see if your loan is eligible by contacting your loan servicer (this is the company that receives your mortgage payment) or by going to http://makinghomeaffordable.gov, which also lists the required documents.
The often overlooked major change HAFA brings to the industry is that it mandates the use of standardized documents and strict time frames. In the past, lenders had to deal with standardized forms, documents created by real estate agents, hybrids of forms used in the past and paperwork that had not been reviewed or approved by real estate attorneys or state boards. These new documents are available on-line and anyone can download them to use from http://https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html.
In a simple overview, after a borrower has applied for a loan modification and not qualified, they can seek relief using the Request for Modification and Affidavit RMA form. The lender has 30 days to respond to the request. If the lender approves, it will offer the homeowner a standard short-sale agreement setting forth the minimum sales proceeds that the lender will accept, taking into account closing costs, real estate commissions and expenses common in the local market. Borrowers have 14 days to accept or reject the short-sale agreement. If a borrower accepts, the home can be listed with a real estate agent for a minimum of 120 days. The time frame can be extended to a full year if necessary.
HAFA sets clear time tables that enable the marketing and sale of the home in an orderly fashion. Sellers do not have to use a Ouija board to come up with a list price. Agents will actually be paid the amount stated in the listing agreement. Buyers have a distinct timetable that allows them to actually plan their move.
The timetable becomes clear:
- Homeowners have three days from receiving a ratified contract to notify their lender and request short-sale approval.
- The lender has 10 days to confirm that the offer meets the short-sale agreement terms and conditions.
- If approved, the new buyer will have a minimum of 45 days to accomplish all the steps necessary to go to settlement.
- The new buyer will also need to agree not to sell the home for 90 days after settlement.
Some other major HAFA improvements
include participating lenders’ waiver of their right to pursue deficiency judgments against borrowers. This means that if a homeowner is able to obtain and comply with the agreement, one the sale is consummated they will be able to move on with their lives without waiting for the large debt to come calling. It will be forgiven, forgotten and wiped out… . Under the Mortgage Forgiveness Debt Relief Act
, the IRS will not treat this forgiveness as taxable income to the homeowner.
The last thing to note is HAFA prohibits participating lenders from completing the foreclosure process when HAFA deadlines are pending. (They can proceed with the foreclosure process but cannot complete it. Lenders demanded that they be in position to act quickly if the process fails) Still homeowners can now enjoy the peace of mind that while the process is pending, they will not come home one night to find their belongings on the curb and new locks on the door as long as they are dealing with a participating HAFA lender.
It remains to be seen if this program will actually work, but finally there is a glimmer of light at the end of the tunnel. The very fact that it exists is an indication that someone somewhere is paying attention. If you would like to discuss your situation, we are familiar with the program and would welcome the opportunity to assist you. Give us a call at 301-509-5111.
ReMax Realty Centre
serving Maryland and the District of Columbia