Originally when the HAFA program was initiated by the Obama administration via the U.S. Treasury Department, the GSE’s (Fannie Mae and Freddie Mac) refused to participate. This seemed a little strange to most of us involved in the Short Sale industry since the GSE’s are considered by most to be quasi government organizations and pretty much controlled by the government. Not to mention they control over 50 % of all mortgage activity. They have now agreed to implement HAFA with some revisions and compromises by the Treasury Department to simplify the process, but keeping the following important elements:
- Release of Borrower Liability – A borrower who is approved for a Short Sale under the HAFA program will not owe the amount of the loan(s) which is not recovered by the sale of the home. The borrower, therefore, will not be saddled with a Deficiencey judgement which could be collected by the investor after closing. This is a Huge benefit to Distressed Homeowners since there is an automatic Deficiency and potential Deficiency Judgement on any property which goes to Foreclosure Auction for less than the full amount owed on the property. In Colorado the investor has up to 6 years after Foreclosure Auction to pursue collection. One Very good reason to attempt a Short Sale rather than just let the property go to Foreclosure Auction.
- No dual tracking – The Servicer on the mortgage is not allowed to begin a Short Sale process and then Foreclose on the property in the middle of the process.
- One point of contact – The Servicing company on the mortgage must assign a single point of contact for the file so there is one person who is familiar with the file and can answer questions, give updates, and potentially assist in getting things moving forward when a log jam or problem occurs.
- Caps on subordinate lien payoffs – Having a cap on the amount a subordinate lien holder can receive from the transaction helps prevent situations where the Short Sale process cannot move forward to approval because of an unreasonable 2nd or 3rd lien holder insisting on getting more from the transaction than the first position lien holder is willing to allow. In many cases the junior lien holders would get zero if the property went to Foreclosure auction so it is a better situation for them to agree to the Short Sale plus the Treasury Department adds an incentive for them to play ball.
- Simplified documentation – The GSE’s insisted on a more simplified process with less documentation required. For example some documents required a signature from the borrower to acknowledge that they understand the terms of the process before the process could continue to the next step. This was an unnecessary step which could be incorporated later in the process and was easily holding things up for an additional 2 or 3 weeks.
I will go into more detail about this in a future post on this subject. Post 2 of 5 on this subject.