Sunday, April 11, 2010

HAFA Short Sale Program

HAFA stands for Home Affordable Foreclosure Alternatives and is a part of Obama's Making Home Affordable program. The HAFA short sale program, effective from April 5, 2010, through December 31, 2012, is said to be the answer to the weary and long process that usually embody short sales. HAFA promises short sale approval within 10 days and gives the seller up to $1,500 in cash at closing. But because HAFA is a government-sponsored program, there are several steps that must be followed:

step 1 -
The first step is for a borrower to apply to HAMP, Home Affordable Modification Program. Here are the rules to be eligible for the HAMP program:

a. Only personal residences are eligible.
b. The mortgage amount must be less than $729,750.
c. The borrower suffers a hardship such as loss of income, an increased mortgage payment or an unexpected increase of expenses.
d. The mortgage originated before January 1, 2009.
Te. he PITI mortgage payment, including HOA, is more than 31% of the borrower's gross monthly income.
(If any one of the 5 rules do not apply, then the borrower is not eligible for HAMP.)

If you are not eligible for HAMP, then you may need to find a short sale agent to help you. If you are eligible for HAMP, it does not mean that you will qualify for HAMP. Eligibility and qualification for HAMP are two different animals. Your goal, if you want to do a short sale, is to hope that HAMP will turn you down. Then you will be eligible for HAFA. Or, if accepted into HAMP, and you stop making your loan modification payments, you can apply to HAFA. This may sound like goofy rules, but it's the way our government works.

I think it's interesting to point out that very few borrowers tend to qualify for a loan modification. Most short sales are for seller's who were rejected for a loan modification.

Step 2 -
Determine if Your Lender Participates in the HAMP Program
It's important to know if your lender participates in HAMP, because lenders that participate in HAMP also participate in HAFA. All Fannie Mae and Freddie Mac lenders are required to participate. Here is a partial list of some of the big-name HAMP participating lenders:

Aurora Loan Services, LLC
Bank of America, NA
Chase Home Finance, LLC
CitiMortgage, Inc
Countrywide Home Loans Servicing, LP
EMC Mortgage Corporation
GMAC Mortgage LLC
Green Tree Servicing LLC
HomeEq Servicing
Horizon Bank
J.P.Morgan Chase Bank, NA
Litton Loan Servicing
Navy Federal Credit Union
Ocwen Financial Corporation, Inc.
OneWest Bank
PNC Bank, National Association
Saxon Mortgage Services
The Golden 1 Credit Union
US Bank, National Association
Wachovia Mortgage, FSB
Wachovia Bank, NA
Wells Fargo Bank, NA

Step 3 -
Eligibility Requirements for HAFA Short Sales
Once the borrower is rejected for a loan modification through the HAMP Program, the borrower is then eligible to apply to the HAFA Short Sale program or pursue a Deed in-Lieu-of Foreclosure. Since I don't know why anybody in their right minds would do a deed in-lieu, I'll stick to the short sale process. HAFA will preapprove the price of that short sale and give the seller 4 months to sell the property through a real estate agent. Here are the eligibility requirements:

a. Only personal residences are eligible.
b. The mortgage amount must be less than $729,750.
c. The seller must be 60 days behind on the mortgage.
d. The mortgage originated before January 1, 2009.
e. The seller was rejected by HAMP for a loan modification.
f. Sellers who have government loans do not qualify.

Benefits to a HAFA Short Sale
- Second lenders can no longer try to force a seller to commit short sale mortgage fraud by demanding payments outside of escrow.
- Lenders that participate in HAFA waive the right to a deficiency judgment.
- Junior lenders can receive up to 3% of the loan balance or $3,000 maximum to release the loan.
- First lenders will receive a government payment of up to $2,000 to approve the short sale (on a 3-to-1 matching basis for paying up to $3,000 to each junior lender), and the investors receive up to an additional $1,500 to cover administrative costs.
- Sellers will receive a government payment of $3,000 at close of escrow to cover relocation expenses.
- Sellers will not be required to make a seller contribution.
- Lenders must agree not to foreclose during the short sale process.
- Another condition of HAFA is all parties must sign an arm's length affidavit. In other words, the seller cannot sell to a person the seller knows or to whom the seller is related. The buyer must also agree not to sell the property for a minimum of 90 days.

Friday, April 2, 2010

Sample Hardship Letter & Sample Authorization Letter

If you are applying for a short sale or loan modification, these samples may come in helpful for you. You will need to submit both of these letters in the beginning stages of the short sale or loan mod.

Sample Hardship Letter for a Mortgage Modification

Hardship Letter:

XYZ Bank
Re: John Jones, 1234 Main Street, USA., loan number 123456789


This letter is to advise you that I can no longer make my monthly mortgage payments in the sum of $___________ as I my income has been reduced as a result of the economy and the value of my home has dropped by at least 50%. I would like to keep my home and I am asking for reduced monthly payments and interest rate over the life of the loan. I am also requesting a three month forbearance. [I recommend asking for a modification for the life of the entire loan, otherwise the lender may only give you a short term modification and that might not help you for a long enough period. The forbearance is asking the lender to forgive some of the debt.]

Sample Authorization Letter

[Only to be used if you authorize a third party such as a mortgage broker, attorney or housing counselor to negotiate your mortgage modification on your behalf]:

To whom it may concern:

We hereby authorize Jim Jones or any employees of the law firm of Jim Jones, address, telephone number, to represent us in connection with my loan number 124556789, in the name of John and Mary Smith regarding the property address: 123 Main Street, USA. You are hereby authorized to give Mr. Jones or any of his employees any information regarding my loan and loan balances.
Very truly yours,

John and Mary Smith
[Include the last 4 digits of both borrowers’ social security numbers below the signature line or somewhere in the letter as well.]