Why HAFA will make you LAFA

Ok, so that pun was a bit of stretch.  But HAFA really has been laughable so far.

There are many reasons for this.  Earlier this month, the National Association of Realtors (NAR) released its “Report on NAR’s Meetings with Large Lenders to Discuss Originations and Servicing Issues.”

In short, the NAR found:

“The Home Affordable Foreclosure Alternatives Program (HAFA) short sale program is not working—at least not yet. The front-line servicing staff knows little about it, and HAFA is resulting in extremely few short sales. This may be because it is overly complex and rigid, or because the servicers are simply not able to keep up with all the programs and the frequent changes made by the Treasury Department, FHA, and the GSEs. Wells Fargo estimates that about 90 percent of HAFA applicants are unable to complete a HAFA short sale because the property, the loan, or the borrower does not qualify. The most common reason is that the property is vacant and HAFA requires owner occupancy (with a limited exception for some job transfers). “

More specifically, here are some of the reasons I think HAFA has failed:

•    HAFA is really only designed to settle 1st liens only.  Ok…ok…yes there is a provision for junior lien holders.  Each subordinate lien holder may be paid NO MORE than 6% of the unpaid principal balance, up to $6000 TOTAL.  So if a junior lienholder is owed $100,000, they can only receive $6,000…how many banks do you know that will accept that?  And what happens if there is a 3rd lien holder and the $6,000 aggregate cap has already been met?

•    Freddie Mac approves the short sale list price.  I’m a licensed real estate agent in 2 states, and I know how difficult pricing homes can be in this market.  It requires knowledge of local trends and neighborhoods.  Do we really want the government setting the list price?  More on this in the next bullet point….

•    Borrowers must agree to a deed-in-lieu of foreclosure if the HAFA short sale is not successful within a specified time frame.  Well, if the government-approved list price was not realistic to begin with, then the borrower and listing agent have been behind the 8-ball since the beginning.  And now the borrower is forced to agree to a deed-in-lieu of foreclosure.

•    Note that at no point in the HAFA program does it say “Borrower is advised to consult with an attorney.”

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