HAFA And How It’s Impacted the Short Sale Process
August 2, 2010 by admin · Leave a Comment
See My Comments About The Market In Newsday – June 29, 2010
As a consumer of the real estate industry, whether you’re a buyer or a seller, you need to know how HAFA has impacted the short sale process. HAFA is the Home Affordable Foreclosure Alternatives Program. HAFA is a program designed for homeowners who cannot stay in their home even with a loan modification through Home Affordable Modification Program (HAMP).
Under HAFA, homeowners can avoid foreclosure by selling their home as a short sale or by giving the house back to the bank through a process called a deed-in-lieu of foreclosure.
What Banks Are Impacted By HAFA?
The best way for anyone to find out if their home is HAFA-eligible is to contact me at 631-831-9048 or email me here. But generally speaking, there are many banks that are participating in the HAFA program.
The first step you should take as a homeowner who needs information, is to contact your mortgage servicer (or lender). You will need to know what your options are. There are basic criteria you must meet in order to be eligible and they include the following:
- Borrower’s total monthly payment must exceed 31% of gross income.
- Unpaid principal cannot exceed more than $729,750 (for single-family).
- High likelihood of mortgage delinquency or default
- First lien originated before 2009
- Must be principal residence
How has HAFA impacted the short sale process?
For prospective buyers, if you go in to a short sale deal, it’s important that you do some up front analysis of the home you’re looking at, especially if it’s a short sale. What do you want to look for and where? Well that’s where a professional like myself comes in. In order to avoid “bad deals” and capitalize on “good” ones, you’ve got to know if HAFA applies to a given homeowner. Unfortunately this is not easily determined.
For sellers and buyers, HAFA has helped streamline the process for all parties. It outlines how you can qualify and provides you, your mortgage servicer and your buyer with a road map for getting things done faster. The process of a short sale typically takes 4 to 6 months. Try having a buyer wait around that long. The process is not an enjoyable one for anyone.
For sellers, it’s important to start evaluating your loan to see if it is a candidate for HAFA. You do this by contacting your mortgage servicer or lender(s). But before doing this, you must determine if your income meets the basic qualifications (your monthly mortgage payment cannot exceed 31% of gross income). And make sure if you have two loans, that your first mortgagee knows you have a second mortgage. Other items like property valuation (to determine if the home’s value is less than what you owe on mortgages) and HAMP ineligibility.
Remember, HAMP (Home Affordability Modification Program) is the first step usually in determining whether or not a short sale is the most viable option for you to avoid foreclosure. These programs from the government start with helping people remain in their homes rather than having them sell and move. However, HAMP has been largely ineffective for many homeowners based on the sheer numbers nationwide.
This slide below is actually a little scary in that, in the millions, taking just the middle-of-the-road numbers, there are about 5.5 million homes in foreclosure (waiting to come to the real estate market). Now measure that with the homeowners who have gone through the HAMP (not HAFA) program (about 350,000 homeowners nationwide).
Clearly, the HAMP (modification program) has not reached enough homeowners and in most cases, will not. People just don’t have jobs. If your income is zero, obviously, your not going to be able to modify your mortgage successfully. So going through the HAMP process to modify your loan isn’t going to change anything or be successful. You need income of some kind and that income amount must be enough so that you can A. Feed yourself and your family B. Pay bills C. Pay household expenses D. Make a modified mortgage payment and E. The monthly mortgage payment must make sense for the bank in some economically sound fashion. The lender or investor must make some kind of money.
You can’t have a $400,000 mortgage and expect to pay the bank or loan servicer $1,100 a month. Banks can’t give away their money either. They have to recoup what they’ve loaned in a way that makes sense.
In closing, if you’re a seller, it’s important that you start the process yourself. You must follow up with your mortgage servicer. If you need help, please feel free to contact me. As a buyer, don’t go out there by yourself looking on your own. Trust me, you don’t want to get tied up in a property that just doesn’t make sense (too many variables exist that could delay your purchase for months and worse, never work out at all). I can help you avoid “bad deals”.
Should you have any questions about how I can help you sell your home via a short sale, please call me at (631)831-9048.
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By Thomas McGiveron, LSA
