Just when I was thinking that maybe, just maybe, I could start trusting the big lenders…they snuck up behind me and bit me in the ass.
I thought that the major real estate lenders out there, when they so graciously agreed to follow the HAFA program guidelines were doing the right thing. Despite the fact that their participation was a contingent of the massive amounts of TARP funds that they received from You, Me and every other tax payer; it still seemed like a step in the right direction.
For those who do not know what the HAFA program is, which is likely to be everyone that is not as much of a geek about it as I am, it stands for the Home Affordable Foreclosure Alternatives. It is a Government sponsored program to assist home owners who have a legitimate financial hardship and are facing a possible foreclosure. It is essentially a series of guidelines that lenders are supposed to follow to streamline the short sale process and protect the borrowers from liability after the sale.
The basic provisions look like this:
- 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 in connection with consideration of a loan modification.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
- Uses standard processes, documents, and time-frames/deadlines.
- Provides the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
- 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.
Sounds great right? I mean for anyone out there that has truly struggled to keep their home, lost a job, or otherwise suffered from a depressed economy (Which was substantially caused by these very same lenders) this provides them an opportunity to get out from under a burden that they can no longer afford without having to worry about having a foreclosure or a possible deficiency judgement haunting them for the next 7 years.
Well that was the way it was supposed to work. But just like the vast majority of people who tried, sometimes over and over again, to have their loans modified through the HAMP program we have learned that this program isn’t quite that easy to get into.
The problem has to do with that last provision in the list above, and one other piece of fine print in the HAFA guidelines that they don’t like to advertise much which says that if a lender is already considering a traditional short sale (one without any of the HAFA protections or guidelines) on a particular property, then that property no longer qualifies for HAFA!
To clarify, this means that if the lender has already received an offer for a short sale for their approval, then that property no longer qualifies for HAFA. This leads us to the sneaky part.
I have found that most of the major lenders will not even talk about a short sale UNTILthey have received an offer! In fact that is their policy. So here’s how the typical hardship situation goes for most HAMP and HAFA qualified home owners:
1. They realize that they cannot afford their mortgage payments
2. They call the lender to try to do a loan modification
3. They spend 6 – 12 months banging their head against a wall while submitting hundreds of pages of documents and financial information to their lender.
4. They get denied for the modification based on investor guidelines that I don’t even understand, despite the fact that they meet every single one of the qualifications set up by the HAMP program.
5. Because they have spent 6-12 months trying to negotiate better terms with their lender, they are now facing foreclosure.
6. They talk to a good realtor, put the home on the market and get an offer.
7. The home owner or their realtor submit the offer to the lender for approval and following the recommendations of the HAFA program, they call the lender to discuss how to get involved with the HAFA program.
8. They are told that this short sale does not qualify for HAFA.
Why? Well that’s the complicated part, but when you get down to it, it’s just like everything else these mega corporations do…it’s all because of the money.
If our home owner happens to have a second loan on their house, the maximum amount payable under the HAFA guidelines to that second lien holder is $6000. That makes things much easier for getting the short sales done, but if the second lien holder happens to be the same as the primary lender, do you really think that they want to take only $6000 to pay off a loan that could be $50,000 or more?
Because of the loop holes mentioned above, lenders have figured out a way to get around HAFA. Their policies are to not discuss short sales until they have an offer, and then once they do have an offer, you are no longer qualified for HAFA and the second lien holder is free to go after you for any deficiency that is not paid in full, or they ask for a promissory note so that you still have a loan that you cannot afford to pay, even though you no longer have a house to go with it.
The way to solve this is to put it in writing – BEFORE submitting an offer for short sale. Write up a letter to the lender stating that you wish to participate in the HAFA program. Once the lender has confirmed that they received that letter, you can go forward with submitting the offer for approval. This still doesn’t guarantee that you will qualify for HAFA, but at least it forces the lenders to consider you for it, and they will then have to have a legitimate reason if they do deny your participation in HAFA. (You can still try to do the a traditional short sale.)
Too bad that what appeared to be the banks stepping in the right direction now looks more like a thief tip-toeing around your back door.