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Why HAFA Is NOT Good For Sellers And May Not Even Apply To You!

The HAFA (Home Affordable Foreclosure Alternatives)Program is coming and will take effect on April 5, 2010. It is essential that you know why it is not a good program and why, if you are a seller, you should throw that agreement in the trash! (this is the PG version of what I really feel you should do with it!!)

Before I go on, you need to know I have spent many hours in webinars and seminars which were ran by Wells Fargo, Bank of America, Freddie Mac and a few nationally recognized attorneys who specialize in short sales on top of plenty of time reading the guidelines and contract myself.

Most of what I will include below is my professional opinion based on the information given to me by the above parties.  I feel it is important to share the information I learned to help you make a more informed decision. Ultimately, you need to take the guidelines and contracts (they call it the Supplemental Directive 09-09), which I've included below, to your own attorney (not just any attorney but one who specializes in short sales) and make an informed decision.  Click here for a free list of questions you'll want to ask to be sure any professional you are seeking advice from actually has significant short sale experience.

Supplemental Directive 09-09 - First of all before I begin it is first important to point out how you know if you are even eligible for the program.  You will need to meet the following criteria:

1. Your loan must be a non GSE loan - Loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (click on either of the previous links to find out if your loan is a Fannie or Freddie loan)

2. The servicer of your loan (who you make your payments to) must have executed a servicer participation agreement and related documents (SPA) withFannie Mae in its capacity as financial agent for the United States (as designated by Treasury) to participate in HAMP on or before December 31, 2009  

3.  A loan must be HAMP eligible and meet the other requirements to be eligible for incentive compensation under HAFA

4. Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options

5.  Borrowers that meet the eligibility criteria for HAMP but who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or default on a HAMP  modification should first be considered for other loan modification or retention programs offered by the servicer prior to being evaluated for HAFA

6. The property is the borrower’s principal residence - no second homes or investment properties

7. The mortgage loan is a first lien mortgage originated on or before January 1, 2009 - if you have a second or third mortgage or any other lien, they are not eligible.   You will be responsible for getting any additional liens released on your own.

8. The mortgage is delinquent or default is reasonably foreseeable

9. The current unpaid principal balance is equal to or less than $729,750 - no jumbo loans

10. The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income

Now on to the Highlights, der, uh, I mean Lowlights:

 

1. Servicers, in accordance with investor guidelines, determine if a short sale or DIL (deed in lieu of foreclosure) is in the best interest of the investor, guarantor and/or mortgage insurer.  It matters not what is in your sellers best interest but what is in the best interest of the investor/lender/insurance companies!

 

2.  By signing the SSA, you are agreeing not only to a short sale but also to a deed‐in‐lieu of foreclosure if a short sale is not successful -  This is a huge gotcha and the               biggest reason why I would not sign or enter into a HAFA agreement!

 

3. A fixed termination date of not less than 120 days, after which, the servicer may or may not agree to extend it for up to a year.  -  On the surface this does not seem all that bad unitl you read #4 below.

 

4. When the seller signs the SSA (HAFA short sale agreement) they are agreeing up front to a DIL (see #2 above).  The investor is obligated to accept a DIL in accordance         with the terms of the SSA if the term of the SSA expires without resulting in a sale of the property -  This means come day 120 the lender can exercise and enforce a DIL because the seller already agreed to it in writing.  For those of you who don't know, a DIL is nothing more than a volunteered foreclosure.  It will show on your credit as a foreclosure.  This is not a benefit to you but it is to the lender because they get the property back in their possession faster thereby saving them money compared to making them go through a judicial foreclosure process.

 

5.  Servicers may amend the terms of the SSA in accordance with investor requirements. - Talk about a sentence that opens the flood gates for lenders to do what they     please!

 

6.   Sellers will have to continue to pay a portion of their mortgage payment. They will be required to pay, during the term of the SSA, an amount that must not exceed 31% of the borrower’s gross monthly income. - Sellers who miss payments will be in default of the agreement and a DIL can be immediately pursued and enforced!

 

7.  The offer price will be dictated by the lender using the 90 day "as-is" BPO value. - The servicer does not have to agree to additional valuation methods. - Sellers better      pray they get an experienced BPO agent because if they over value your property and it does not sell within 120 days because it is overpriced,  you just gave your property to the bank (see DIL #2 and #4 above) 

 

Don't fret though as there is ONE good thing about HAFA.  You can opt out of this program at any time!  If the borrower fails to contact the servicer within the timeframe or at any time indicates that he or she is not interested in these options, the servicer has no further obligation to extend a HAFA offer.   This means you can elect to perform what is now being referred to as a "proprietary" or "classic" short sale (or a non HAFA short sale).   

 

If you have help from a qualified experienced short sale professional, they will know all you have to do is put in your short sale package cover letter the words, "THIS IS TO BE A NON HAFA SHORT SALE."  They will also have many ways to help you avoid having a foreclosure on your record, avoid agreeing to a DIL, avoid agreeing to deficiency judgements and avoid signing promissory notes.   

 

Bottom line, HAFA is great for the lender/servicers but not so much for you, the homeowner/seller.  I predict HAFA will be another massive failure just as HAMP has been.  This program will be a good fit for very few homeowners, if any at all.

 

The sooner you realize lenders control our politicians and they both falsely act as if their programs will work better for consumers while in reality they have figured out, in advance, how they will ultimately improve their own position and bottom line, the better off you will be!  KNOW YOUR RIGHTS!

 

 

Disclaimer: While attempts have been made to verify information provided therein, the author does not assume any responsibility for errors, omissions, or contradictory information contained in this document. This document is not intended as legal, investment or accounting advice. The reader of this blog assumes all responsibility for the use of these materials and information. 

 


 

 

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Comment balloon 28 commentsKevin Kravcak • February 27 2010 04:46PM

Comments

I attended the BofA, WF, Freddie audio conference this week.

I am not encouraged that more than a handful will mee this LAUNDRY LIST of guidelines.

Good post with great detail.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 11 years ago

Thanks Kevin, like most govt plans to stop foreclosures this wasn't well thought out. 

Posted by David Krichmar, DaveYourMortgageGuy.com (www.DaveYourMortgageGuy.com - Legend Lending) almost 11 years ago

Thank you Kevin for your analysis.  My opinion is its a government program that is optional for lenders to participate in.  If they participate, they obviously feel they will add more to their bottom line by doing it than not, so that should tell the public where they stand.

Posted by Jared Hokanson, Your Home Sold, GUARANTEED!* (Hokanson Realty & Jared Realty Group) almost 11 years ago

Good information, Kevin.  Once again, it seems, it is not the consumer who gets the benefit!

Posted by Carol Lee, Realtor - Agoura, Oak Park, Westlake CA Homes (Dilbeck Real Estate) almost 11 years ago

With all the money they put into this, the govt would have done better to randomly pick homeowners and pay off their mortgages...they would have helped more people and saved the taxpayers money!!! I am more than annoyed.

Posted by Dawn Maloney, 330-990-4236 Hudson & Northeastern Ohio (RE/MAX Trinity Northeast Ohio Real Estate Specialist) almost 11 years ago

Thanks for a very detailed information. DIL is indeed a big catch. Not a real help to anyone who may need it

Posted by Svetlana Stolyarova, Local-n-Global Realty, Broker 216-548-4663 (Local-n-Global Realty, Cleveland and International Real Estate Solution) almost 11 years ago

Often, it IS the 2nd lien that has gotten the home owner in the hot water.  Whether they obtained it to finance their purchase, the 2nd lien holder TOOK A RISK.  If the financial market tanked, the 'win-win' in this charade is that the #1 position will be able to have a deed in lieu, the 2nd will be able to indeminfy the 1st lien holder, but hold the home owner responsible.  The homeowner will be bettter off talking with their bankruptcy attorney, perhaps.  If the home is foreclosed -- the 1st and 2nd lien holders can take it up between themselves. 

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) almost 11 years ago

Good, well thought out, and well documented blog. I agree with your conclusion that there are a couple o more mine fields in this program. Participant BEWARE.

Posted by Guy Thomas (WR Starkey Mortgage) almost 11 years ago

My first featured blog!  Thank you all for your comments and kind words.  

Lenn - I'm honored, thanks for the love and it is quite sad isn't it

Dave - that depends on what side you're on

Jared - very true, I only hope the public is smart enough to pick up on that fact

Carol - yep, more of the same...the bait is they will waive any deficiency but anyone with experience would tell you, you could get that removed in most cases anyway prior to or excluding HAFA.  IMHO, why take the risk of a DIL?  Should we really trust these lenders will do the right thing on behalf of a homeowner in default?   I may not be that smart but I'm not that dumb either!

Dawn - it is sickening isn't it - meanwhile the CEO's are still flying around in their private jets and the politicians get nice cushy jobs when their term is up!!  

Svetlana - A huge catch and a well thought out one as well....I just hope no one falls for it..... hook, line and sinker!

Carla - A Chapter 7 BK, while effective, should be a last resort, ......first I'd go with a "proprietary or "classic" short sale.  If the offer is good enough, they'll take it and there are ways to get the first and second to back off a judgement or note.  Getting attorneys involved on behalf of the seller is a good start!

 

 

Posted by Kevin Kravcak (Realty Mark Nexus) almost 11 years ago

Guy - Thanks and well said...Participant Beware!!

Posted by Kevin Kravcak (Realty Mark Nexus) almost 11 years ago

All I can say with what I've had a chance to read above it a big "What, I don't get it?"  Who is this supposed to benefit.  I seems overly onerous to me. 

Posted by Frank Castaldini, Realtor - Homes for Sale in San Francisco (Compass) almost 11 years ago

Kevin - Great, informative post. It seems like another governmental wolf in sheep's clothing. Another reminder for people to READ EVERYTHING before signing ANYTHING. and ASK QUESTIONS if you don't fully understand it.

Posted by Pat, Ben and Martin Mullikin (M3 Realty) almost 11 years ago

You've motivated me to read HAFA bill tomorrow! It always sounds so good in theory...welcome to the neighborhood.

 

Posted by Felix Hung, #FelixtheCoach (eXp Realty) almost 11 years ago

If this post is right, we need a lot of bankers and federal employees going directly to jail.

Posted by Jim Hale, Eugene Oregon's Best Home Search Website (ACTIONAGENTS.NET) almost 11 years ago

Oh boy, once again I am dumbfounded.  It seems I've spent much of the last year in this state of befuddlement.  Thank you for your well written and easy to understand break down of this.

Posted by Kris Wales, Real Estate Blog & Homes for Sale search site, Macomb County MI (Keller Williams Realty - Lakeside Market Center) almost 11 years ago

Kevin, thanks you for taking the time and write this excellent pots. . I'm re blogging you and I will also subscribe to your blog!

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) almost 11 years ago

Frank - Lenders! They have gotten paid every step of the way during this fiasco

Pat and Ben - Indeed

Felix - thanks....... take your time, read it more than once, it's all there

Jim - No Jail, at the end of the day it's a contract that you have to agree to in writing, hence the opt-in, opt-out part.  Even though the opt out part is hidden quite well in the middle/end of the 17th paragraph (or thereabout).   read it for yourself...the heading of the darn thing is Introduction of Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure 

Kris - Thanks, just trying to help - it's not that hard to understand really....the banks are in it for themselves, it's all about money, the don't care about us, never will, it's just business to them and all that matters is the bottom line!   Sad but True.

 

 

 

Posted by Kevin Kravcak (Realty Mark Nexus) almost 11 years ago

Kevin - it seems once again that the government has elected to ignore those that are really hurting in this whole mess...the consumers who are just barely hanging on, trying to save their credit, with homes that are totally upside down.  I am so frustrated with our government's efforts in housing!  They just don't seem to get it.  Thanks for posting this....homeowners need to be aware of what they are truely getting themselves into and work with a real estate professional and attorney who understand this process.

Posted by Lori Mode, Real Estate Made Simple (The Mode Real Estate Group) almost 11 years ago

Thanks for the blog and the information.  There was such promise.  It is so sad that a program has been "created" again but is not going to help.  Margaret C.

Posted by Margaret C. Taylor, St Marys/Calvert/Charles MD Real Estate Agent (Century 21 New Millennium MD) almost 11 years ago

Now this is what I have been looking for - a posting looking out for the seller.

Posted by Robert Earl -The Earl of St Pete, The Earl of St. Pete (St Pete LUXE Living Group) over 10 years ago

Kevin:

This was an awesome post to read.  It cleared my mind on HAFA.  Now I know what to do and I will follow your advice. 

Posted by Carol Pease, CRS, Broker-Associate 512-721-6320 (JP & Associates Realtors) over 10 years ago

 

Kevin,

We have to give the credit to the feds for accepting the short sale.  When banks numbers state that they lose 66% to an REO and 46% to a short sale...the Short Sale is the obvious plan of attack.

Your concerns of DIL I feel, are an over concern...why...if you're trained correctly and experienced in the current short sale process...the Deed in Lieu will never be an issue.

You will have had the property in contract well before the DIL is an issue...correct?

As far as a BPO goes...again, training tells you there are many ways to get the correct #'s to the bank to get your property sold. It's as simple as understanding the process and taking action to get your #'s to the bank.

And as you mentioned in your article...the seller can "opt-out" at any time.  Where are the bindings and lock-downs...there are none?

I agree as I have been on the WF and BofA HAFA calls and even met with BofA VP in charge of Short Sales...their processes are not in place and they can't comment on something that is not in place.

We have a little over 2 weeks...give them time to educate and implement.

While I appreciate your time and consideration in the HAFA article...I am concerned that the readers of this blog are not getting an objective POV.

Lord knows we need some positive reinforcements for our economy!

Best,

Kris

 

Posted by Kris Darney over 10 years ago

I had the same feeling when I originally read over the directive.  There are a lot of problems with it, and I think it puts the seller at more risk than a "classic" short sale. 

So if someone is unemployed, they're still required to attempt a HAMP loan modification before they could do a short sale under the HAFA program, even though the loan modification is guaranteed to fail?  How much time and resources will be unnecessarily spent in that process?

I also think the 10 day short sale approval stated in the HAFA directive is a bit optimistic.  Most lenders can't even get the paperwork in their system, let alone make a decision within 10 days.  I have a letter from B of A regarding a short sale I'm working on.  The letter stated that they would make a decision on the short sale within 10 days of receiving the paperwork.  The short sale package was sent in over six months ago, and we probably still have another month to go before we get a decision from them.

Posted by David Monroe, Short Sale Real Estate Agent (Keller Williams Realty) over 10 years ago

Its quite unfortunate that someone will read your article and fully endorse what you've written.

I was lucky to be among the group that works regular short sale & HAFA  short sales since it was introduced. This programme is th eperfect program for any seller, especially with the mortgage industry being this bad. Any programme that can let you sell your home for what it's currently worth, give you 3k to relocate and wipe the deficiency if worth qualifing for. You dont have to be working to qualify for the programe.

The time frame between the time you request a HAFA short sale to closing is between 30-45 days with my company and this is the time frame of a regular short sale is 30 days (luckl). Given an optin to wait for 15 extra days and get my deficiency wiped, i will definitly take it.

 

Please make informed decisions.

Posted by Jean about 10 years ago

Jean,

Thanks for commenting.   I commend you for your efforts in helping distressed home owners.  I wrote this article to do just that...help people make informed decisions.

I also get short sales approved everyday for my clients and get the same or better outcomes without having them sign a HAFA agreement!

I never said it couldn't be done, my point is a seller can get a short sale approved without signing a deed in lieu up front and without being forced to continue to make payments, even if those payments are reduced payments, on a home they can no longer afford and soon will no longer be living in.

HAFA may be a good fit for some but very few people even qualify and for those that do, it still may not be their best financial option.   Sure it's great for the lender to continue to receive payments and have a pre-signed deed in lieu but is that in the best interest of the seller?  I'm not so sure in most cases I've experienced.  

An experienced short sale negotiator will be sure to have any potential deficiencies waived, negotiate a relocation fee and sometimes, more importantly, get the lender(s) to actually accept less than current market value as part of the settlement regardless of a HAFA short sale being signed or not. 

So, if one can negotiate with the lender for all parties of the transaction and can get the same, if not better, end results without the need of having the seller continue to make even partial payments or sign a deed in lieu, why should they sign a HAFA agreement in the first place?   With that being said, Please enlighten me and everyone else who reads this in the future as to how and why signing a HAFA agreement is in the sellers best interest if all other things are equal or better when not signing it?

I realize in some cases HAFA may make sense, the whole point is, everyone's situation is different.........know and understand all your options, seek out experienced professionals including legal and financial counsel and make informed decisions!

Keep up the good work.

 

Posted by Kevin Kravcak (Realty Mark Nexus) about 10 years ago

Amen! You get it, we try to educate our clients to the out and out risks of HAFA. I would love to repost your blog on our site, ShortSaleSellit.com

It's really a great post!

Posted by Kris & Kimberly Darney, Your REALTORS® For Life (Darney Realty) about 10 years ago

Hi Kris and Kim,

 

Thanks and feel free to reblog it as long as you give me the credit as the author or just link it.

Keep at it!  Distressed home owners need you.

Posted by Kevin Kravcak (Realty Mark Nexus) about 10 years ago

Kris

Seller does not have to make partial payments with HAFA unless their investor is FANNIE MAE or FREDDIC MAC (not to mention this 2 jointed HAFA in 08/10).Non-GSE don't have to make any payments at all to qualify.

Signing the SSA.

SSA is only signed by sellers who want HAFA but don't have their home listed or don't have a buyer yet. SSA helps the listing agent and sellers understand what the listing price should be and minimum NET amount the bank is willing to settle for (which is always negotiable). SSA will normally quote a higher listing price than what the current market value is (no worry) the bank/lender understands that. It up to the listing agent to make a decision on whether they have to go with the inflated listing price on SSA or what the current market price is.  I would recommend listing it for what's worth coz that's what the bank will settle for regardless of the SSA figures.

Posted by jean about 10 years ago

Participate