April 5th marks a significant change in short sales around the country as it is the deadline to for certain mortgage servicers (the entities to whom borrowers make their mortgage payments) to implement HAFA (Home Affordable Foreclosure Alternative). This post is a quick guide for the investor to understand HAMP (Home Affordable Modification Program) and HAFA.
The information provided below is
*NOT* advice of any kind and readers must retain and consult a duly licensed attorney, accountant, and investment advisor before making any decisions. Further, we will provide our opinion on the impact of HAMP & HAFA on the Las Vegas housing market.
Due to the significant amount of misinformation available via real estate blogs, the line between fact and opinion will be
extremely clear in this post:
OPINIONS will be marked as such, using capital letters and boldface text.
What is HAMP?HAMP is an acronym that stands for Home Affordable Modification Program. It is a government program that requires participating mortgage servicers (the entities to whom borrowers may their mortgage payments) to follow certain guidelines regarding mortgage modifications for distressed homeowners. HAMP is a part of the "Making Home Affordable" (MHA) government effort.
What is MHA?MHA is an acronym that stands for Making Home Affordable. MHA is a government effort that encompasses HAMP (modifications) and HARP ("Home Affordable Refinance Program," which obviously addresses refinances for distressed homeowners).
Who are the participating mortgage servicers?This is the list of participating mortgage servicers.What is HAFA?HAFA is an acronym that stands for Home Affordable Foreclosure Alternative. HAFA is a part of HAMP and HAFA takes effect on April 5, 2010. HAFA addresses short sales and deed in lieu of foreclosure.
If certain conditions are met, the borrower MUST be considered for a short sale OR deed in lieu of foreclosure by their servicer. These conditions are as follows (
verbatim from Supplemental Directive 09-09):
- The property is the borrower’s principal residence;
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,7501; and
- The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income.
Additionally, the servicer must:
- Develop a written policy of how minimum net proceeds (for short sales) will be determined.
- Consistently apply said policy to determination of minimum net proceeds for all of its short sales.
- Accept a standardized form (RASS - Request for Approval of a Short Sale) requesting short sale approvals.
- Approve or deny a RASS
within 10 business days.
- Not require a close of escrow of an approved short sale
less than 45 days after the date of the purchase agreement without the approval of the borrower.
So What?If a
borrower's mortgage servicer is on this list, they must participate in HAMP and as of April 5, 2010, they also must participate in HAFA.
Participation in HAMP and HAFA is MANDATORY for servicers on the list.
There are blogs that state that HAFA is optional; this statement is patently false. Here is
verbatim text from Supplemental Directive 09-09 (bold text added): "As a result, servicers already participating in HAMP
must follow the guidance set forth in this Supplemental Directive, which provides servicers with the option to determine the extent to which short sales or deeds-in-lieu will be offered under this program."
OPINIONS:
The impact of HAMP and perhaps more importantly, HAFA is tremendous. As many have experienced first hand, the process for completing a short sale transaction is cumbersome, tiresome, and in Las Vegas, only successful about 25% of the time.
While we normally oppose government legislation and/or intervention in the free market, we feel that the introduction of HAFA and its mandatory compliance could be a substantial contributor to the stabilization and recovery of the housing market, both nationally and locally. In our opinion, this stabilization really centers on several items:
- A requirement placed upon servicers to standardize their short sale approval process, including their minimum net proceeds calculation. While the SD 09-09 does not specify how lenders can calculate their minimum net proceeds, it does state that they must have a written policy for its calculation and they must uniformly apply it to their short sale considerations.
- A requirement placed upon servicers to respond within 10 business days of a request for short sale approval. This is a tremendous change. Buyers of short sales have long been frustrated by waiting periods over 6 months and this can no longer be the case.
In our opinion, HAFA's implementation on April 5 will fundamentally change the characteristic of short sales, especially in Las Vegas. We participated in a conference call with Bank of America, Wells Fargo, and Freddie Mac this week that indicated all three entities were firmly on board with HAFA.
Counterpoint (OPINION):Like all government programs and efforts, HAFA's implementation may be substantially hampered by the following:
- Lack of enforcement.
- Lack of knowledge (just google "HAFA" and read some of the misinformation).
- Loopholes in requirements.
- Bad faith compliance (for example, a servicer who does not want to comply can follow SD 09-09 but set the mininum net proceeds at an unreasonably high level, thus denying all short sale approval requests).
Posted By: David Kang
Image source: http://www.lvrj.com/business/existing-home-sales-rise-in-april-94761909.html
