The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option. The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately. They include:
- There are no longer any occupancy requirements for HAFA eligibility.
Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months.
- The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
- Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
- Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
- Credit bureau reporting of HAFA transactions are amended as follows:
- If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified: Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
- The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.
The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners. Certainly, the increase in the amount of gross proceeds available to settle junior liens should help. This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions. Of course, as with all previous program changes, the proof will be in the pudding. Stay tuned….