HAFA (Home Affordable Foreclosure Alternatives) short sale program became effective on April, 2010, and ends at the end of 2012. While HAFA was created to streamline the short sale process by setting clear timelines, documentation requirements and procedures to make short sales easie, HAFA has been a total failure since a recent report from the Congressional Oversight Panel that oversees TARP states that the Treasury has spent just $4.3 million on HAFA for 661 short sales. How much money did TARP have, 700 Billion and they spent 4.3 million, wow!
Clearly further modifications are needed and it came at the start of 2011. You can find the changes below
- HAFA no longer requires that servicers verify the borrower’s finances. This means that sellers would probably not be required to fill out an inch or so of financial documents.
- HAFA no longer requires servicers to determine if the borrower’s monthly payment is higher than a 31 percent debt-to-income ratio. No change here as the vast majority already qualify.
- HAFA no longer requires second-lien holders to agree to accept 6 percent of the unpaid principal balance owed them, up to $6,000. Servicers now decide who gets paid how much, with a cap still at $6000. So a second lien holder that is owed $30,000 or $50,000 can get the full $6,000. This is a good thing, since some of these second mortgage holders can actually make more money by settling for $6,000 rather than selling the loan to a collection agency, excellent for the poor borrower/seller.
- HAFA now requires borrowers seeking a short sale get an answer/agreement within 30 days.
There were three road blocks to doing short sale deals in Las Vegas:
1: The seller had to prove hard ship (gone)
2: Specific Performance which means that the lender can go after the borrower for the difference between the selling price and loan amount. Now the banks are willing to forgo this but Fannie Mae and Freddie Mac don’t. Naughty Feds
3: Second mortgages: The banks sell these to collection agencies as of right now after foreclosure
The bottom line is that foreclosing on a home or condo in Las Vegas costs banks 10% more than short selling it. Any vandalism, which many Las Vegas foreclosures have been subject to, severely adds to this cost. Banks have learned by now that letting borrowers who are in default live in their home longer than 4 months will result in a happier situation and saves money when they foreclose and it is far more politically palatable than foreclosing as soon as 4 months is over. Now if the same borrowers can short sale their home without proving financial hardship, the banks will save money and that is the reason that new rules should help to drastically cut the number of Las Vegas foreclosures in a few month.
I hope what I wrote above made sense but don’t blame me if things don’t work out that way since making sense ain’t got nothing to do with how banks do things.