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HAFA Helping Homeowners: A Guide to Short Sales

by The KCM Crew

Excellent article by KMC on a short sale government program – HAFA:

Today’s post is dedicated to helping families find an alternative to foreclosure, and helping them return to the goal of homeownership more quickly; therefore, we are emphasizing the brochure developed by the National Association of Realtors (NAR) that nicely summarizes the existing HAFA Program.

On November 30, 2009, the Obama Administration released guidelines and uniform procedures for its Home Affordable Foreclosure Alternatives Program (HAFA). Modified HAFA rules for loans owned or guaranteed by Fannie Mae or Freddie Mac will be issued in coming weeks. HAFA does not apply to FHA or VA loans.

About HAFA

HAFA, which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP), provides incentives in connection with short sales and deeds-in-lieu of foreclosure.

The program:

Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

Uses borrower financial and hardship information already collected under HAMP.

Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).

Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).

Uses a standard process, uniform documents, and timeframes/deadlines.

Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders.

Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

The program sunsets on December 31, 2012.



If a servicer has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer’s duty to give a HAFA offer.

Servicers must consider HAMP-eligible borrowers for HAFA within 30 days after the borrower does at least one of the following:

Does not qualify for a HAMP trial period plan

Does not successfully complete a HAMP trial period plan

Is delinquent on a HAMP modification (misses at least 2 consecutive payments)

Requests a short sale or DIL

Short Sale Agreement

The borrower has

14 calendar days from the date of the Short Sale Agreement (SSA) to sign and return it to the servicer. The SSA must give the borrower an initial period of 120 days to sell the house (extensions permitted up to a total of 12 months).

Purchase Offer

Within 3 business days

a copy of the sale contract and all addenda

buyer documentation of funds or pre-approval/commitment letter from a lender

all information on the status of subordinate liens and/or negotiations with subordinate lien holders.

of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including

Within 10 business days

after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower.


The servicer may require the closing to take place within a reasonable period after it approves the RASS, but not sooner than 45 days from the date of the sales contract unless the borrower agrees.

The servicer must release its first mortgage lien within 10 business days (or earlier if required by state or local law) after receipt of sales proceed from a short sale or delivery of the deed in the case of a DIL. Investor must waive rights to seek deficiency judgments and may not require a promissory note for any deficiency.


Who is eligible for HAFA?

The borrower must meet the basic eligibility criteria for HAMP:

Principal residence

First lien originated before 2009

Mortgage delinquent or default is reasonably foreseeable

Unpaid principal balance no more than $729,750 (higher limits for two- to four-unit dwellings)

Borrower’s total monthly payment exceeds 31% of gross income

How is the program being implemented?

Supplemental Directive 09-09 (November 30, 2009) gives servicers guidance for carrying out the program. A short sale agreement (SSA) will be sent by the servicer to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply.

After the borrower contracts to sell the property, the borrower submits a “request for approval of short sale” (RASS) to the servicer within 3 business days for approval. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The servicer must still consider the borrower for a loan modification.

What are the steps for evaluating a loan to see if it is a candidate for HAFA?

1. Borrower solicitation and response

2. Assess expected recovery through foreclosure and disposition compared to a HAFA short sale or deed in lieu of foreclosure (DIL)

3. Use of borrower financial information from HAMP

4. Property valuation

5. Review of title

6. Borrower notice if short sale or DIL not available (to borrowers that have expressed interest in HAFA).

What else should I know?

The deal must be “arms length.” Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.

The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end of 2012, however, forgiven debt will not be taxed if the amount does not exceed the debt that was used for acquisition, construction, or rehabilitation of a principal residence. Check with a tax advisor.

The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which may hurt credit scores.

Buyers may not reconvey the property for 90 days.

Here is a printable copy of NAR’s HAFA Brochure and NAR’s Text-Only version of the Brochure.  If you’d like more information on HAFA and more detailed FAQs, visit

Courtesy of The KCM Crew


Sell with dignity, preserve your creditworthiness and start rebuilding your life.

I have helped many clients  avoid foreclosure.

For more information and a FREE REPORT ON SHORT SALES please call

Barbara Pedersen
Realtor®, Short Sale Specialist
(708) 539-9900

or email:

August 28, 2010 Posted by | Short Sales | Leave a comment


Are Modification Programs Actually Working?

by The KCM Crew on August 24, 2010 ·

One of the greatest threats to a housing recovery is the months’ supply of housing inventory available for sale. A normal market would have between 5-6 months inventory. We currently have 8.9 months of inventory and most experts believe that number will increase rather dramatically when the National Association of Realtors’ August Existing Housing Report is released today. The supply of inventory is made up of two categories of properties: non-distressed and distressed (short sales and foreclosures).

Part of the administration’s stimulus package was aimed at curtailing the flow of distressed properties coming to the market therefore easing the downward pressure on home prices.

The Home Affordable Modification Program (HAMP) is the administration’s hope for troubled homeowners trying to avoid foreclosure by modifying their current mortgage payments. The original press release said the program was:

“…aimed at helping 3 to 4 million at-risk homeowners – both those who are in default and those who are at imminent risk of default – by reducing monthly payments to sustainable levels.”

The goal was to help prevent 3-4 million distressed properties from coming to the market.

How close to goal is the program?

The administration released the August Housing Scorecard yesterday. The report attempts to convey the successes of the administration’s policies in stabilizing the housing market. The report shows that they have completed only 434,700 permanent modifications to date. The administration also just announced that of those permanent modifications, 19.6% will re-default within 9 months. That leaves over 3 million properties that will probably end up as distressed sales.

Mark Zandi, chief economist at Moody’s Analytics, probably said it best:

“The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications.”

What does this mean?

There will be more and more distressed properties coming to market. Even the Housing Scorecard addresses this issue both in print and with a graph:

“Foreclosure completions also inched upward as the volume of serious delinquencies continues to work through the pipeline.”

Though the numbers of foreclosure notices are stabilizing, the numbers of repossessions are still on the rise.

Bottom Line:

The modification program has not been the answer the administration had hoped it would be. There will continue to be downward pressure on home prices as the inventory of distressed properties continues to mount.

Courtesy of KCM,


Sell with dignity, preserve your creditworthiness and start rebuilding your life.

I have helped many clients  avoid foreclosure.

For more information and a FREE REPORT ON SHORT SALES please call
Barbara Pedersen
Realtor®, Short Sale Specialist
(708) 539-9900

or email:

August 28, 2010 Posted by | Uncategorized | Leave a comment


Everybody Calm Down. Armageddon Is NOT Upon Us!
A must read from Steve Harney:

by Steve Harney on August 26, 2010 ·

New housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew

I want to start by saying that Armageddon is not upon us.
Was NAR’s Existing Home Sales Report tough to read? Yes.
Were there any surprises in the report?
Just one: the fact that prices have remained stable. And that was good news.

All the panic and gut-wrenching revolves around two numbers:

  1. The lack of sales in July
  2. The months’ supply of inventory now available

Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.

Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!

In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.

As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.

What does this mean to you?

You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.

August 28, 2010 Posted by | Uncategorized | Leave a comment


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