HAFA enhancements due next year

by Broderick Perkins

(12/24/2012) - Lenders are gearing up for updates to the Home Affordable Foreclosures Alternatives (HAFA) program, which will offer enhanced refinancing opportunities for homeowners as well as a boost for investors.

For Fannie Mae and Freddie Mac loans, HAFA is the short sale and deed-in-lieu arm of the Obama Administration's Making Home Affordable program the refinancing due next.

A short sale allows a homeowner to sell his or her home to a buyer for less than the amount due on the property. In a deed-in-lieu transaction, the homeowner turns the property over to the lender, in lieu of a foreclosure.

Effective Feb. 1, 2013 and running through Dec. 31, 2013 the new rules further speed up the short sale process for struggling borrowers, even those who are not delinquent.

A U.S. Treasury Department financed program, HAFA offers assistance to those who have a documented financial hardship and have a mortgage obtained before Jan. 1 2009 for less than $729,750.

Forget help if you've been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.

You won't qualify.

HAFA's "Supplemental Directive 12-07: Home Affordable Foreclosure Alternatives Program — Policy Update" includes the following updates:

• Decision time - The time frame for servicers to make a decision on a borrower's request for HAFA assistance has been shortened from 45 to 30 calendar days.

• Pre-determined hardship - Borrowers who request HAFA consideration and are ninety (90) days or more delinquent and have a FICO score that is less than 620, will be deemed to have a "pre-determined" hardship. Borrowers with a pre-determined hardship must execute a Hardship Affidavit prior to closing of the HAFA transaction; however, servicers will not be required to further validate the hardship.

• Resale time - The current prohibition against resale of a property for 90 calendar days following a HAFA closing is being changed to prohibit any resale within 30 calendar days and prohibiting a resale for more 120 percent of the HAFA short sale price between 31 and 90 calendar days of the HAFA closing.

The rule is a more robust effort than of the Federal Housing Administration's anti-flipping exemption, which allows investors buy homes and resell them within 90 days of purchase.

Both are investor-friendly efforts to put more housing in the pipeline. Investors, more adept then lenders at moving properties, can quickly turn around or flip purchased properties and quickly put them back into the pool of available homes for sale.

• Incentives - HAFA is increasing the incentive it will provide for permitting gross proceeds to be used to pay subordinate mortgage liens.

Earlier HAFA approved up to $8,500 of gross sales proceeds applied to pay subordinate mortgage lien holders in exchange for a release of the lien and waiver of borrower liability.

Investors were eligible for reimbursement of one dollar for every three dollars of short sale proceeds paid to a subordinate mortgage lien holder up to $2,000. For HAFA short sales after Dec. 1 2012, the investor can be reimbursed two dollars for every three dollars of short sale proceeds paid to a subordinate mortgage lien holder , not to exceed a total of $5,000.

• Documentation - Use of certain HAFA documents will now be optional rather than mandatory, so long as the servicer communicates essential HAFA terms to the borrower in some written form.

Also, the Treasury will now require both the seller and purchaser in a HAFA short sale transaction to execute a new HAFA affidavit prior to closing that certifies, among other facts, that the sale represents an arm's-length transaction and that no money is being given or received that is not reflected on the HUD 1 Settlement Statement.

While the new rules aren't effective until February 1, 2013 mortgage servicers can implement the changes immediately.