New Rules for Short Sales Imposed by HAFA
Loan servicers participating in the Home Affordable Foreclosure Alternatives Program (HAFA) will soon be held to stricter timelines for approving or rejecting short sales and will be forbidden from deducting vendor expenses from commission paid to real estate brokers. In addition, servicers will also be given more freedom to pay off second-lien holders.
With the new rules in place, servicers will have 30 days to send a borrower a short-sale agreement that includes the list price or acceptable sales agreement with hopes of aiding distressed borrowers who fail to qualify for other government loan modification programs. Once a sales contract has been initiated, servicers will have 30 days to approve or reject the transaction.
The new timelines were created with the goal of speeding up the short sale process as a result of complaints regarding the length of time it takes lenders to review and approve short sales. Oftentimes, buyers walk away simply due to the long wait. These changes in timelines are only the second major revision to the program by the Treasury Department since its launch in 2009.
Servicers will no longer be restricted on paying second-lien holders. Servicers used to be restricted to paying second-lien holders no more than 6% of the outstanding loan balance in exchange for releasing subordinate liens. The change in second-lien policies tackles yet another hurdle to completing short sale transactions for the future.
The new rules are effective February 1, yet do not apply to mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or those that are insured by the Federal Housing Administration.