Transcript Slide 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.
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HAFA-2013
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.
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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
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Provides preapproved short sale terms
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Releases borrowers fully from liability on all mortgage debt
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Provides up to $3,000 in relocation assistance for owners or occupants
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Uses uniform documents, standardized process and time frames
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Allows payment to secondary mortgage holders, up to maximum total $8,500
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Allows payment of non-mortgage liens at servicer’s direction
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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.
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Buyers may not resell property for 30 days.
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Between 30 and 90 days after closing, no sale over 120% percent of the
HAFA sale price is allowed.
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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.
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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.
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1.2 Eligibility
The borrower must:
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Be experiencing financial hardship (confirmed by affidavit)
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Not have bought another home in the past 12 months
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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:
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Be a first mortgage less than $729,750 (on 1-4 units)
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Have been originated on or before January 1, 2009
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Be in default—or default is “reasonably foreseeable”
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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.
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1.2 Eligibility
Some borrowers have what are considered
“pre-determined hardships” that do not
require documentation:
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Mortgage over 90 days delinquent
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Credit scores of 620 or lower
Other Restrictions:
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The property must not be condemned.
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The borrower must be a natural person
(not a corporation, partnership, or other
business entity).
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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.
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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.
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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.
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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.)
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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Chapter Summary
Elements of HAFA:
•
Part of HAMP
•
Applies to HAMP-eligible borrowers
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Offers short sale or deed in lieu
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Provides preapproved short sale terms
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Offers full release of liability on all mortgage debt
•
Uses standardized documents, processes & timeframes
Financial Incentives
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$3,000 for borrower relocation assistance
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$1,500 for servicers
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Up to $8,500 payment to junior mortgage liens
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Sales commissions allowed, up to 6%
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2-for-3 reimbursement to 1st mortgage holder
for payment to junior liens—up to $5,000
Eligibility Requirements:
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Financial hardship
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First lien originated before 2009
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Unpaid principal balance up to $729,750 (1-4 units)
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Restrictions
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Must be arm’s-length
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No resale within 30 days
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Must not be condemned
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Must be owned by a natural person
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Resale price limited to 120% 30-90 days after close
Submission Process
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Seller submits completed Hardship Affidavit
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Servicer sends SSN within 30 days
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Seller sends accepted offer
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Servicer must approve within 10 days
Alternative Process
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Seller sends accepted offer
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Servicer sends ARSS within 10 days
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Upon receipt of completed Hardship Affidavit
servicer must issue decision within 30 days
GSE Short Sale Program
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Borrowers with hardship approved even if current
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Minimum documentation for self-evident hardship
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Contribution or promissory note may be required
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GSE’s waive deficiency judgment
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$6,000 for all junior liens
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Automatic approval for relocating military
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