BIG CHANGES IN THE HAFA GUIDELINES—–AND THEY’RE GOOD! (There Is New Language On Commissions Too)
02. Apr, 2010
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Just one week before the implementation deadline for the new HAFA Program, the Treasury Department issued revised HAFA short sale guidelines. (Well at least they didn’t wait until the last minute). The document is called “Supplemental Directive 09-09 Revised” and it could change the ballgame by making HAFA successful. Apparently, the Treasury Department had been listening to all the complaints about the HAFA program as it was proposed in the original guidelines that were published on November 30, 2009.
People who read the initial HAFA guidelines found several serious problems with them. First and foremost was the inadequate incentives in the program. It was pretty easy to predict that requiring junior lienholders to accept no more than $3,000 or 3% of the amount of their lien, whichever was less in exchange for a full deficiency release wasn’t going to fly and would result in the failure of most HAFA short sales with junior liens.
What the treasury has done in the revised HAFA guidelines is double every incentive in the program. Borrowers can now receive $3,000 in relocation assistance, and junior lienholders can receive $6,000 or 6%, whichever is less. That just might be enough to bring the junior lienholders into the program. Obtaining mandatory deficieny releases for borrowers from the junior lienholders will make the HAFA program very enticing for qualifying borrowers.
There are other changes as well that may make the program easier to qualify for. For example their is now a limited exception to the occupancy requirement and additional financial documents from the borrower that can be considered by the servicer among the changes.
A very significant revision was made to the language about real estate commissions also. As you are aware from my past posts on this topic, the original HAFA program was set up so that the servicers could hire vendors to help with the transaction and charge the vendor’s fees against the real estate commission. I must not have been the only one pointing out the unfairness of this provision as well as the negative result it would have on HAFA short sales, because they changed this language too.
In the new revisons the language was taken out about the commission reduction and instead it now states that the fees will come from the sales proceeds instead. In paragraph 5c of the Short Sale Agreement form it now reads as follows:
“Real Estate Commissions. We will allow to be paid from the sales proceeds, real estate commissions of ____ percent of the contract sales price, to be paid to the listing and selling brokers involved in the transaction……(Optional text:) Please note: We have retained a vendor to assist your listing broker with the sale. The vendor and your listing broker will work together on your behalf to facilitate the sale process. (Choose one and deleter unnecessary test.) (The vendor will be paid from sale proceeeds ($_____) OR (an amount equal to ___% of the sales price).) OR (The vendor will be paid by us outside of the sales transaction.)”
The offending language has been deleted so you would think that your commissions would be safe. However one additional change they made was in the first sentence. The original HAFA text said agents would be paid commissions “not to exceed 6% of the contract sale price.” Now it says “____% of the contract sale price”. This makes me think that they are going to try to negotiate your commission down on the front end when the servicer plans to hire a vendor. So they got rid of the offending commission language and added a loophole for the servicers to still reduce the commission.
This change in the commission language could result in the servicers hiring far fewer vendors if they don’t reduce the real estate commissions because of the revised HAFA rules. This is because the fee then has to be charged against the sales proceeds (which means the investor pays it). If this is the case, all those vendors who just recently announced their new servicer assistance programs planning to get part of the real estate commmission may find that they are overstaffed.
However, the HAFA authors may have screwed up because they didn’t change the language in the Alternative RASS form (This form is used if you have an offer before your seller is approved for the HAFA program). This form states in paragraph 1c that: “We will allow to be paid from the sale proceeds, real estate commissions as stated in the listing agreement between you and your broker, not to exceed six percent (6%) of the contract sale price,….” This looks like a backdoor way for agents to always receive a full 6% commision on their HAFA short sales. If the servicers start reducing commissions in the Short Sale Agreement (SSA), I expect a lot more offers may be submitted on Alternative RASS form.
This program is starting to get trickier to navigate. To help real estate agents understand the program better, Frontline is going to hold a free webinar explaining the program and its positive and negative aspects within the next two weeks. If you want to be notified when this free webinar will be held, and you are not already one of our subscribers, be sure and sign up in the free membership box to the right of this article on the homepage and we will notify you by email.
For agents and brokers who don’t want to wait for the webinar, remember you can check out our free HAFA video series at www.hafaprogram.com or you can purchase our three hour training for only $67 at www.2010shortsaleplaybook.com .
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Hey Lance, thank you for this valuable information. My questions are these:
Is the HAFA program available to a homeowner that has gone through NACA (not HAMP), and was denied by the lender?
Is the HAFA program available to a homeowner that has an investor loan, and not a Fannie Mae/Freddie Mac loan?
I have several clients with these conditions.
Thanks!
How do we start a short sale now. We are told the banks have to try Hamp first and they decide if it goes short sale, they decide the price now where do the agents start the process? Wait to see if a bank hires us? Do we contact the banks? That is very fussy to me.
HAFA was created to be part of the HAMP modification waterfall. This means that when a HAMP eligible borrower falls out of HAMP or cannot qualify for a modification then they will be directed to the HAFA program. If someone has gone through NACA, but the loan was also eligible for HAMP consideration then they still might be able to get into the HAFA program. New lenders and servicers are signing up all the time so a loan that wasn’t eligible before could be eligible now. But strictly speaking HAFA was set up only to cover HAMP eligible loans.
HAFA is specifically available for residential owner occupied non Freddie / Fannie loans. Freddie and Fannie will be issuing their own HAFA compliant guidelines shortly and they are expected to mirror the HAFA guidelines. Unfortunately, at this time HAFA is not available for investor loans unless it is a 2-4 unit property and the borrower is living in one of the units.
Gayle, To answer you questions fully and correctly would require more space and time than a reply to your comment really provides. I would suggest you register for my free one hour webinar I are presenting on HAFA next Tuesday April 13. The webinar will answer all your questions and will allow me the time to explain the process so it is easy to understand. You can sign up for the webinar by clicking the link below.
https://www2.gotomeeting.com/register/143337674
I just found this blog a while ago when a buddy recommended it to me. I have been a regular reader ever since.
Thanks for the update
I just couldnt leave your website before saying that I really enjoyed the quality information you offer to your visitors… Will be back often to check up on new stuff you post!
i have a client who is approved for HAFA except for the clause about ‘occupying the property after close as a rent-back”. i just read a clause above that says, “There are other changes as well that may make the program easier to qualify for. For example their is now a limited exception to the occupancy requirement and additional financial documents from the borrower that can be considered by the servicer among the changes.” How can i get the servicer (chase) to allow my clients to ‘rent back” and still qualify for HAFA?
Thank you for the great blog! I appreciate your clear and concise answers.