How will the new HAFA program created by the Obama Administration affect short sales?

The Obama Administration’s new short sale plan, which begins April 5, calls for banks to agree to not pursue borrowers for any deficiency judgments after a short sale, requires second lien holders to accept a maximum of $3,000 to settle their debt, allots $1000 to mortgage servicers for a successful short sale, and allows for up to $3,000 in “relocation” assistance to borrowers.

The plan – Home Affordable Foreclosure Alternatives, or HAFA – is for borrowers who qualify for or have participated in the Home Affordable Modification Program, or HAMP, but have not been able to make their new reduced mortgage payments through the trial period. It is also for any borrower who has tried to modify their loan through HAMP and now requests a short sale in order to avoid foreclosure.

The program calls for banks to decide what they are willing to take dollar wise in the short sale before the property goes on the market, so that the buyer, real estate broker and seller know what price the property needs to sell for in order for the bank to approve the short sale. It also requires lenders and servicers to use uniform documentation and short sale terms, prevents them from reducing the real estate agent’s commissions in a short sale and greatly expedites the lender’s short sale approval process to ten business days after receipt of an offer.

HAFA also allows lenders to offer a deed in lieu of foreclosure to borrowers with government insured loans without requiring borrowers to first put the property on the market for 90 days, which is the typical protocol for a deed in lieu of foreclosure.  Read the program in its entirety.

          There are some restrictions:

  1. Your lender’s participation in this plan is strictly voluntary.  The lender is not required to participate in this plan but if they do participate, they must abide by the rules for every short sale request.
  2. The short sale must take place on the person’s primary residence.
  3. The loan must have originated before January 1, 2009.
  4. The maximum owed is capped at just over $700,000.
  5. The total monthly mortgage payment must also exceed 31% of the borrower’s income.

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