St Louis Real Estate News

UPDATE- June 2, 2010: The National Association of REALTORS obtained answers from the Treasury Department on 3 common questions about HAFA:

1. agents are not permitted to rebate a portion of their commission to the buyer,
2. sellers who are real estate agents must list their home for sale with another broker, not their own broker, and
3. the incentive allowed for subordinate lien holders (6% of any one subordinate lien, up to a total of $6,000 for all subordinate liens) is a hard cap and may not be supplemented from any source.

In March I did an update on the Home Affordable Foreclosures Alternative (HAFA) Program which was scheduled to go into effect April 5, 2010.  Today, Fannie Mae issued guidelines to their servicers outlining the policies and produres Fannie Mae had adopted as a result of HAFA.

What is HAFA?  In a nutshell it gives qualifying homeowners the opportunity to do a short-sale or deed-in-lieu rather than face foreclosure:

The Home Affordable Foreclosure Alternatives Program provides financial incentives to loan servicers as well as borrowers who do a short-sale or a deed-in-lieu to avoid foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives help the lender out by avoiding the potentially lengthy and expensive foreclosure proceedings and also by protecting the property by minimizing the time it is vacant and subject to vandalism and deterioration. These options help out the borrower by avoiding the foreclosure process and the uncertainty that comes with it and allows the borrower to negotiate when they will give up possession of their home as well as, under the HAFA program be released from any further liability from the loan including short-fall and deficiencies.

Highlights of the guidelines given to mortgage servicers by Fannie-Mae:

• Servicers are “encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately;” however, they have until August 1, 2010 to implement them.
• The HAFA  Short-Sale and HAFA DIL (deed-in-lieu) program will be offered to borrowers through December 31, 2012

Borrower Eligibility for HAFA Consideration:

• A borrower cannot be considered for HAFA until the borrower has been evaluated for a HAMP modification (including, but not limited to, providing all required income documentation).
• Once a borrower has met all of the eligibility criteria for HAMP, the borrower must be considered for a HAFA short sale or DIL (after all home retention options have been considered) if the borrower:
  • was not offered a trial modification due to inability to meet the HAMP qualifications (for example, did not pass the net present value (NPV) evaluation or meet the target monthly mortgage payment ratio based on verified income);
  • failed to complete the trial period successfully;
  • became two consecutive payments (31 or more days) delinquent on the modified mortgage loan; or
  • requests a short sale or DIL.
• Lender’s are not allowed to consider a borrower for a Fannie Mae HAFA short sale or DIL (without consent from Fannie Mae) if:
  • a foreclosure sale is scheduled to be held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL, ordetermination that a borrower is ineligible for HAMP, or;
  • a foreclosure proceeding could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL or determination that a borrower is ineligible for HAMP; or;
  • the mortgage loan is secured by a property in Florida on which foreclosure proceedings are pending, judgment has been obtained, or a hearing on summary judgment or trial is scheduled within 60 days.

Financial Requirements of Borrower for HAFA:

The lender, prior to deciding if the borrower is eligible for HAFA, must determine if the borrower has:

• the ability to continue making the mortgage payments but chooses not to do so; or
• substantial unencumbered assets or significant cash reserves equal to or exceeding three times the borrower’s total monthly mortgage payment (including tax and insurance payments) or $5,000, whichever is greater; or
• high surplus income.

So the bottom line here is, if you have a bunch of assets, money in the bank or high income relative to you debt, Fannie Mae is not going to be interested in letting you walk away from your deficiency after a short-sale, or DIL.

On question that has come up on other posts I’ve written about this, is the effect of bankruptcy on eligibility for HAFA….Here’s the answer from Fannie Mae:

• A borrower in an active Chapter 7 or Chapter 13 bankruptcy case must be considered for a Fannie Mae HAFA short sale or DIL if the borrower, borrower’s counsel, or bankruptcy trustee submits a request to the servicer. However, the servicer is not required to solicit borrowers in active bankruptcy cases for shorts sales or DILs. With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a short sale or DIL. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. The servicer must extend the required time frames outlined in this Announcement as necessary to accommodate delays in obtaining bankruptcy court approvals or receiving any periodic payment when made to a bankruptcy trustee.

Lenders must, upon determination of eligibility for a HAFA Short-Sale or DIL, determine the fair market value of the property:

• As soon as a borrower is determined to be eligible for a Fannie Mae HAFA short sale or DIL and has demonstrated a willingness to participate, the servicer must take the necessary steps to determine the market value of the mortgaged property. Fannie Mae will require a broker price opinion (BPO) based on an interior and exterior inspection of the property or, if licensing requirements in the state dictate use of an appraisal for these purposes, an appraisal
• The BPO (or appraisal, if required) must be dated within 90 calendar days of the date the relevant HAFA Agreement is executed by the servicer.

Allowable Fees on Short-Sale:

Fannie-Mae will allow:

• real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;
• real estate taxes and other assessments prorated to the date of closing;
• local and state transfer taxes and stamps;
• title and settlement charges typically paid by the seller;
• seller’s attorney fees for settlement services typically provided by a title or escrow company;wood-destroying pest inspections and treatment, when required by local law or custom;
• homeowners’ or condominium association fees that are past due, if applicable.
• Fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must NOT be deducted from the sales proceeds or charged to the borrower.
  
  • Additionally, the Servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan.

In addition, Fannie Mae will allow;

• The Lessor of 6% of the balance of a junior lien, or $6,000, to settle the second lien.
• $3,000 to the Seller, to be paid out of sale proceeds, to help defray the costs of relocation.

Short-Sale Approval Should be Faster:

One of the major hindrances to short-sales has been the amount of time it takes for a lender or servicer to respond to an offer to purchaser, many times taking several months.  Under these new guidelines that should not be a problem because, provided the Seller’s Agent has submitted all the required document to Fannie Mae (they only have 3 business days to submit) then the servicer must respond to the offer within 10 business days indicating acceptance or rejection of the offer. This is huge and should really help facilitate short-sales.

Deed-in-Lieu Eligibility:

Generally, for a borrower to be eligible for a Fannie Mae HAFA DIL, the mortgaged property must have been listed for sale at market value for 120 days or more. A servicer may waive the requirement that the property securing the mortgage loan previously be listed for sale in cases involving:

• a serious illness or disability,
• a deceased borrower or co-borrower,
• a borrower or co-borrower who has been relocated or who has been deployed by the military,
• a determination that local market conditions would impede a sale of the property,
• a borrower who demonstrates an unwillingness or inability to maintain or market the property during the listing period, or
• a borrower who has expressed an interest in doing a Deed for Lease

This is simply an overview of the Fannie-Mae guidelines and the HAFA program…there is much more, but this gives you the idea.  For starters, this is nothing that  a homeowner would want to take on alone in my opinion.  I think you need a qualified real estate broker or agent, that has in-depth knowledge about HAMP and HAFA and the short-sale process.

To get more information I suggest your read my post from March, you can access that by clicking here, or if you really want to have some fun, you can read the complete Fannie-Mae guidelines by clicking here.