HAFA to Help Shorten Short Sale Approval Process

The government’s HAFA program that went into effect on April 5, 2010 should help shorten the length of time it takes a lender to approval a short sale. The HAFA program is an alternative for homeowners that do not meet the guidelines under the government’s Home Affordable Modification Program to receive a mortgage loan modification. The HAFA program is for sellers that want to sell their home as a short sale because they are upside down on their mortgage.

This is great news for sellers, buyers and investors. There are a lot of good investment opportunities buying short sales. The biggest obstacle has been how long it takes to get them approved.

Under the HAFA program, the loan servicer or lender has 10 days in which to respond to the seller whether or not they are approving the short sale offer. This is a huge difference in the way the short sale process has been handled up to now. It has been taking lenders anywhere from three months to six months and even up to a year in some cases to approval a short sale.

The program is voluntary so both the lender and the seller must agree to participate in the short sale and close the transaction. The government is offering the lender and the homeowner incentives to close the deal.

Here are highlights from the HAFA program:

The borrower’s financial information and hardship letter that was submitted with their loan modification request is used in connection with the short sale determination.

The borrower can obtain the pre-approved short sale terms the lender is willing to accept for the sale of the home before they list the home. This way, there is no guessing as to what price the lender will accept for the property. It lets the buyer/investor know the exact price they must pay for the home.

Releases borrowers from any future liability or deficiency judgment against them by the lender. So basically, the short sale proceeds are applied to the loan and the bank writes off the rest of the debt. The seller owes nothing more on their loan.

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.
Each individual lender has to create their own process and policies concerning their own HAFA.

Hopefully, Bank of America, Chase, Wells Fargo and others will implement these changes quickly and stream line the process making it easier for all parties to close a short sale transaction.