Short Sale Article: "HAFA: Top Five Misconceptions"

April 20, 2010

Nash Law Firm, PLLC
By:  Stephen J. Nash
nash@nash-law.com

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The Home Alternative Foreclosure (HAFA) has been release with great fanfare - 10 day approvals, borrowers will have no future liability for the mortgage debt, borrowers get a $3500 relocation payment and HAFA will result in a streamlined, standardized short sale process.

These are all wonderful results, if they actually come to be. The latest directive from the U.S. Treasury explaining the HAFA program is 45 pages long. Based upon a reading of the directive, the following are my top 5 things that most real estate professionals do not know about HAFA.  

Buying a REO property is not your ordinary purchase.  There are greater risks and, hopefully, greater potential rewards.  To help avoid or manage the greater risks, the following are my top misconceptions a buyer should consider when purchasing a REO.

First Misconception - The Ten Day Approval

A ten day short sale approval would be wonderful!  Unfortunately, what appears to be too good to true often is not true.  

• While the guidelines talk about a ten day approval, the approval is at the end of a very long process that could make the short sale transaction actually take longer to migrate through.  
• The ten day approval only applies if the lender has received all of the necessary documents (who decides what are necessary and these are the same lenders who routinely lose documents).  
• HAFA is not a law, has no enforcement provisions which means that if the lender does not meet the ten day approval time frame, there is not remedy.

Second Misconception -  That HAFA is a Law Imposed on Lenders

HAFA is an extension of the HAMP program.  Both programs are voluntary and have no enforcement teeth to them even if a lender voluntarily joins the program.  Most of the major lenders have voluntarily agreed to participate in the HAMP and the HAFA program, but until the lenders actually start processing them, we will not know how effect the program will be.

With the HAMP program the lenders have not come close to meeting the time frames or the goals of the program.  Only time will tell with the HAFA program.

First Misconception - The Ten Day Approval

A ten day short sale approval would be wonderful!  Unfortunately, what appears to be too good to true often is not true.  

• While the guidelines talk about a ten day approval, the approval is at the end of a very long process that could make the short sale transaction actually take longer to migrate through.  
• The ten day approval only applies if the lender has received all of the necessary documents (who decides what are necessary and these are the same lenders who routinely lose documents).  
• HAFA is not a law, has no enforcement provisions which means that if the lender does not meet the ten day approval time frame, there is not remedy.

Second Misconception -  That HAFA is a Law Imposed on Lenders

HAFA is an extension of the HAMP program.  Both programs are voluntary and have no enforcement teeth to them even if a lender voluntarily joins the program.  Most of the major lenders have voluntarily agreed to participate in the HAMP and the HAFA program, but until the lenders actually start processing them, we will not know how effect the program will be.

With the HAMP program the lenders have not come close to meeting the time frames or the goals of the program.  Only time will tell with the HAFA program.

Third Misconception - That HAFA Applies to All Mortgages

Right off the bat, at least fifty percent of the mortgages will not apply because HAFA does not apply to Ginnie Mae or Freddie Mac loans.  The homeowners lender will have to voluntarily agree to participate in the program (most major lenders have done so) and their are requirements the the borrower must also meet.  Some of the qualification requirements can be looked at before entering the program but many will not be apparent until the borrower actually goes through the process. 

Fourth Misconception - That All HAFA Short Sales Will Follow The Same Procedure

The HAFA program allows for differences within each HAFA short sale depending on the investor guidelines for that specific mortgage.  While many of the HAFA guidelines are set out as if they are mandated in many instances they allow investor guidelines to control.  The difficulty for the homeowner will be that they will not know if there are investor guidelines that will effect their short sale.

Fifth Misconception - That HAFA Will Be Easy to Understand and Navigate Through

The latest directive from the US Treasury Department outlining the HAFA program is 45 pages long - need I say more?  

Conclusion

As with all of these programs, it will take time for the lenders, investors, borrowers and real estate professionals to wade through the process.  It is also likely that we will find that different lenders will each have a slightly different process and the investors will all have different requirements that they impose on the system that may make subtle or significant changes to the program.  Finally, we can all expect that the HAFA short sale of 2011 will be different in many ways than the HAFA short sale of 2010 - unfortunately, we don't know what those changes might be.