In 2010, the government rolled out a supplemental program to Home Affordable Modification Program called HAFA. HAFA stands for Home Affordable Foreclosure Alternatives. This program was specifically designed to facilitate short sales and “Deed-in-lieu” of foreclosures. From the very beginning there was strong skepticism from real estate professionals who specialized in selling distressed properties about the ability of this program to deliver. Housingwire.com reported that between April and December of 2010, only 661 deals had closed under the HAFA program nationwide.
HAFA has many fatal flaws. First, it was born of another complete failure, the HAMP program. Secondly, the program was supposed to fast-track short sales and deed-in-lieu’s but in doing so, participating banks were not incentivize, and in fact, lost many of their recourse options. For example, 2nd lien holders had to accept meager payoffs and waive any deficiency balances on their losses. Thirdly, this program was completely voluntary on the banks’ behalf. They only had to consider borrowers for approval, not approve them!
2nd Lien Holders say no thanks!
Junior lien holders if they chose to participate in HAFA had to accept a maximum payoff of $6,000 or 6% of the loan balance, whichever was less. You can see the problem. A 2nd lien with a $50,000 balance would have to accept a $3,000 payoff and waive any right to pursue the borrower? Not likely. This rule meant that unless your 2nd lien was the same bank as your first, you had zero chance of an approval. I recently just obtained a HAFA approval for one of my short sale listings here in Las Vegas. The home had two loans but they were with the same lender.
This week the Treasury Department announced:
- HAFA eliminated loan servicers from having to verify borrower’s finances
- HAFA also relieved loan servicers from verifying whether a borrower’s monthly payment exceeds 31% of their gross monthly income
- 2nd lien holders may receive a max payoff of $6,000, even if the payoff exceeds the 6% of the unpaid loan balance. This should help small 2nd liens under $50,000
- Once approved for HAFA, loan servicers have 30 days to approve an offer. The previous requirement was 10 days which was unrealistic
In the end these measures may allow more short sales and deed-in-lieu’s to proceed but it will never approach the demand represented by millions of homeowners. When you’re trying to top 661, anything will look like a victory, I guess.