February 2, 2011 (Shirley Allen)
Important changes took effect yesterday in the government’s Home Affordable Foreclosure Alternative (HAFA) program. The Treasury Department has revamped its short sale program by easing income restrictions and documentation requirements for homeowners facing foreclosure to help streamline the HAFA process and make the program more accessible to homeowners. In the first eight months, only 661 short sales have been processed through the program.
One of the most significant changes is the elimination of the requirement that the borrower’s total monthly mortgage payment exceeds a 31% debt-to-income ratio, a requirement that many industry professionals believe should never have been there in the first place. This change will allow more people to qualify for HAFA, broadening the reach of the program.
Another change that will allow more people to apply is that the amount of time that a property may have been vacant prior to signing a short sale agreement has been extended from 90 days to 12 months. However, the requirement that the property was the sellers’ principal residence prior to relocation remains.
Other changes pertain to second mortgages. Previously, second-mortgage investors were required to accept 6% of the unpaid balance owing to them, up to a cap of $6,000. Under the new guidelines, the $6,000 cap for second mortgages remains in place, but the 6% rule has been eliminated.
The HAFA process will also be streamlined by a requirement mortgage servicers provide borrowers with a short sale agreement within 30 days of being requested to do so.
Travis Olsen, chief operating officer at Loan Resolution Corp., expects the changes will lead to a big jump in HAFA enrollment. “A lot more people are going to qualify for the program,” he said. “Elimination of the debt-to-income requirement along with the relaxed non-owner occupancy rule makes it easier for those who do qualify to get their short sale successfully closed.” LRC is a Scottsdale, Ariz., vendor that specializes in short sales.
Borrowers are entitled to a $3,000 relocation incentive payment when a short sale or DIL is completed. When a deed in lieu transaction is completed, the mortgage servicer can make the incentive payment even if the borrower stays as a renter under the HAFA changes.
Mortgage servicers will have the option to pay the borrower a relocation incentive either upon a successful surrender of title or when the borrower vacates or re-purchases the property at a future date, according to a TARP Inspector General report.
Tags: HAFA, treasury department, homeowners, mortgage servicers, debt-to-income ratio, short sale, principal residence, occupancy rule