Thursday, December 1, 2011

Not All Loans Qualify for the HAFA Program

Not All Loans Qualify for the HAFA Program

by Melissa Zavala on November 3, 2011
HAFA Program Do you remember the phrase, “If the glove doesn’t fit, you must acquit?” Most of you probably do. That wasn’t so long ago.
Well, the other day, I received the following email about participation in the HAFA program, and I felt that, in this case, the HAFA glove didn’t fit.
Check it out:

I read your article about HAFA short sales and I wanted to ask you to help me with your advice.  I am the seller of a house and have been approved by my first lien holder for a HAFA short sale. Now my real state agent indicated to me that my second lien holder has not agreed to a HAFA short sale and that they want more than the $6000 offered by the 1st lien holder. They sent an approval letter asking for $15,000 to settle the debt.  The problem is that under the HAFA rules sellers can’t give a contribution to the sale so I asked her if we could give them the $3000 that is offered to us for relocation. So, our agent said that we can do that but she also kind of hinted that we could pay the rest to make up for the $15,000. I told her I need to check into this further. Now, this is my problem: my agent told me that she doesn’t have any means to make the 2nd lien holder agree to the sale.
I find out that the 2nd lien holder is a participant of the HAMP program and they post it on the website. So, why they don’t obey the rules? 
And, the email goes on…

There are several issues here that need to be clarified not only for this short sale seller (who I have already spoken with) but also for agents who are not doing HAFA deals 24/7.

Point #1
If there are two liens on the property and the first lien holder participates in the HAFA program, the second must also agree to the terms and conditions of the HAFA program in order to complete a HAFA short sale. In a HAFA short sale, the first lien holder allows for a $3000 incentive to the seller at closing. The second lien holder agrees to accept $6000 from the first. Both agree to waive the right to pursue deficiency.

Point #2
Just because a lien holder is on a list of HAFA or HAMP participants does not mean that the borrower’s specific loan will be eligible for the HAFA program. For example, Bank of America services notes for over 200 different investors. While many of the investors do participate in HAFA, not all of them do. So, if you see Bank of America on a list of HAFA participants, know that this refers to the investors who participate in the program.

Point #3
Just because both lien holders do not participate in HAFA does not mean that you can’t do a short sale. The borrower above can still participate in a short sale, but will not be eligible to obtain the $3000 cash incentive and other benefits of the HAFA program.

Point #4
Agents, always remember that any contributions to the second lien holder need to be approved by the first lien holder and need to be shown on the HUD-1 (settlement statement). If a borrower needs to use some of the incentive money for payments at closing or if a borrower (a buyer, a seller or an agent) is going to contribute some cash (to the second lien holder, to the HOA, etc.), this must be approved by the first lien holder.
So, in the situation described above, the HAFA glove did not fit this short sale seller. So, she must acquit—of let go of the hope of participating in HAFA and work on closing this transaction as a traditional short sale.


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