Tracey Martin

The HAFA program is the government's new Short Sale/deed-in-lieu program. The government created the program in order to assist home owners who can no longer afford their home and who wanted to avoid the damage a foreclosure does to credit. The following is my understanding of the program guidelines as presented in the Making Homes Affordable supplemental directive 09-09.

The government has asked lenders to voluntarily implement a program called Housing Affordable Foreclosure Alternative (HAFA). The start date is April 1, 2010, although it is expected that many lenders will implement the program sooner. Although participation is voluntary, any lender who participated in HAMP is expected to offer HAFA to their at risk borrowers.

Loans in which Fannie or Freddie have an interest do not qualify for the program. They are working on their own short sale program.

In order to qualify for HAFA, a home owner must meet the basic eligibility requirements for HAMP. They are:

• The property is the borrowers principal residence.
• The mortgage is a first lien originated before 01/01/09.
• The mortgage is delinquent or default is reasonably foreseeable.
• The current mortgage balance is $729,750.00 or less.
• The borrowers monthly mortgage payment exceeds 31% of their monthly gross income.
• If the borrower has mortgage insurance, the mortgage insurer must waive their rights to collect any deficiency.

If a borrower meets the following criteria, the participating servicer must give the borrower the option to participate in HAFA.

• The borrower did not qualify for the HAMP trial period.
• The borrower did not sucessfully complete the HAMP trial period.
• The borrower is delinquent on their HAMP modification.
• The borrowersrequests a short sale or deed-in-lieu.

The good news for sellers who participate in HAFA:

• The lender is required to forgive any deficiency.
• The seller will get $1500.00 at close of escrow.
• The short sale will be pre-approved and the listing price will be provided to the listing agent by the loan servicer.
• The servicer will provide written approval within 10 days of receipt of an executed purchase contract.
• The servicer will pay up to 3% to junior lien holders, but no more than $3000.00.

The good news for buyers:

• The endless waiting for short sale approval will be eliminated.
• Servicer will allow up to 45 days for close of escrow.

This program will take all the frustrating unknowns out of the short sale process.

Most of the concerns I have about the program are with other lien holders.The HAFA summary states that it is the borrower's (with the help of their Realtor) responsibility to deal with other lien holders. Experienced short sale agents know how to deal with junior lien holders, however juniors could be a problem based on HAFA guidelines.

The program provided $3000.00 for junior lien holders and requires them to give up their rights to pursue a deficiency. If a junior wants more than $3000.00 or refuses to give up their right to pursue, the borrower may not be able to obtain clear title as required. If there is more than one junior, $3000.00 may not be enough to satisfy them all.

Another potiential issue is that senior liens are not mentioned. Property taxes are considered a senior lien In the current short sale process, lenders will pay past due property taxes in order to obtain clear title. Since the HAFA guidelines state that providing clear title is the borrower's responsibility, one could assume that the borrower would have to pay any past due property taxes, before close of escrow, in order to provide clear title.

Other than the issues that may arise with liens, I feel that this is a program that will give many homeowners the fresh start the are looking for. It is definitely a step in the right direction.

I have been visiting a lot of homeowners in distress lately and most of them are hoping for a loan modification. But I wonder; are loan modifications really in a home owner’s best interest? After all, in Monterey County most homeowner’s who purchased their home between 2002 and 2007 owe more than twice what it is worth. Let say your lender creates a plan that gives you a payment you can afford, at least for the next several years, what happens when you are at the end of the modification period and you can’t refinance? Really wanting to do what is best for my clients and my community, I have been doing a lot of online research trying to find out how long it will take a homeowner who is under water to accrue any equity, or at least be at the breakeven point. There wasn’t a lot of information on the subject, but here’s a study I found: Brent T. White, from the University of Arizona James E Rogers College of law, published a paper in October 2009 called “Underwater and not walking away.” It appears that he did extensive research. In his paper he references a couple from Salinas. They owe $585,000.00 on their home that is now valued at$187,000.00. According to the author the couple would save $340,000.00 by walking away, assuming they planned to stay in the home for ten years. He further states that if we assume that the Salinas market has hit bottom and their home “appreciates at the historical appreciation rate of 3.5% annually,” it will take more than 60 years for them to recover their equity. Sixty years with no equity. Wow. In the past, home owners have used the equity in their homes for things like home improvements, putting a kid through college, and paying off other debt. In the past when a homeowner retired they could sell their home and pay cash for something smaller. If this couple chooses to stay in their home, they will never be able to borrow against it. They will not be able to leave it to their children because they would be leaving them a liability, not an asset. They will not be able to sell it and pay cash for a smaller home. It is no longer a “nest egg.” It will be a liability for the rest of their lives. This study confirms my reasoning that a short sale is a much better option for underwater homeowners. That is why 3 years ago, I decided to become a Realtor who specializes in short sales. While my fellow Realtors were telling me “I was nuts” because a short sale transaction can be very difficult and frustrating, I knew it was the best way for me to serve my clients and my community. While everyone one was trying to get those easy REO listings, I was fighting for my client’s credit and their ability to buy a home in the future. If you have been trying to get your loan modified, take some time to think about the negative equity in your home. Is it worth hanging onto? The reality is that if you short sale your home, Fannie Mae guidelines state that you can buy another home in two years. I have had short sale client’s whose credit was 710 or better one year after their short sale. Not many in the real estate industry think that prices are going to go up by much in the next 2 years and if you have taken care of the rest of your credit, you will be able to buy a home that will have a chance to grow equity. Fannie Mae guidelines also state that you can buy another home right away if you have not missed a payment. The sad truth is that if you owe 2 or 3 hundred thousand dollars more than your home is worth, it is unlikely that your home will ever be an asset. Also remember that it is just a place to live. If you choose to short sale your home, you get to take everything that truly matters with you. A house is just a house; it is the love of family and friends that make it a home.