Posted over 12 years ago

The HAFA Program is a Bunch of Crap

The other day I was on Twitter and just generally asking people what they though of the impending HAFA (Home Affordable Foreclosure Alternatives) program, which is coming down the pike from the Obama administration on April 5th, less than two weeks from today. A lady named Sarah Stelmok, who also happens to run a fantastic blog on short sales, had posted up a reply that summed up quite eloquently what I’ve been hearing from many real estate agents, investors, and others “in the know”.

“I think it’s a bunch of crap and is a complete waste.”

Let’s break down why this sentiment seems to exist all over the Internet.

What is HAFA?

First off, for those of you who have been living under a rock, the HAFA program is an extension (technically, Supplemental Directive 09-09) of the Home Affordable Modification Program (HAMP), which itself is a part of the Making Home Affordable (MHA) program, which covers both home loan modifications under HAMP and direct refinance under HARP.

HAFA is basically an attempt to streamline the short sale process using Deed in lieu (of foreclosure).

To be eligible for HAFA, you must meet certain criteria. We have gone over some of the bullet points of the HAFA program when it was first announced, so we won’t state it again, but in a nutshell the idea is to provide incentives to the involved parties in a short sale (the lender, the realtor, the 2nd lienholder (if there is one – and usually there is) to help motivate them to process through the transaction.

There is a lot of confusion out there on whether HAFA is mandatory for the lender. From what we have been able to uncover, HAFA is only mandatory in very limited circumstances. The list of participating servicers is available at the Making Home Affordable Servicers List. The exact language from Directive 09-09 clearly states:

“As a result, servicers already participating in HAMP must follow the guidance set forth in this Supplemental Directive, which provides servicers with the option to determine the extent to which short sales or deeds-in-lieu will be offered under this program.”

It still seems to be up to interpretation, but for the most part what we are gathering is that this Directive is simply an amendment to the existing HAMP program, which in itself is not mandatory.

So, what is HAFA supposed to accomplish?

HAFA is designed to “clear the books” on lenders of their underperforming loans. While HAMP attempted to keep homeowners in their homes by modifying their mortgages; HAFA actually gets them out of their homes entirely, and attempts to standardize the short sale process for all lenders.

The program is pretty ambitious. As anyone who works in short sales knows, the timelines and paperwork can be onerous and difficult. The Directive 09-09 pages 16-43 are all forms and documents related to standardizing the process.

In a few bullets, HAFA is supposed to speed along the housing recovery in the United States by:

  1. Standardize the short sale process across lenders
  2. Speed up the short sale process significantly
  3. Fully release homeowners of any deficiency judgments

There is a lot of confusion out there from what this all means. For example; the HAFA guidelines state that short sale approvals will take a maximum of 10 days. That doesn’t mean, however, that the short sale process is going to go from it’s typical 60-90 days down to 10 days. It only means that when all the ducks are in a row (or line, however you say it) – the BPO is ordered, all the paperwork is complete and in – then the clock starts ticking.

Will it work?

Well, no one really knows. Many are skeptical, for a number of reasons:

  1. The underwhelming results of the overarching HAMP program. As a matter of fact, through January 2010, HAMP had only created a little over 100,000 modifications, despite having promises of reaching 4 million plus struggling homeowners. Remember, the HAMP program was also “mandatory“, but the results still were meager at best.
  2. Promises of speeding up the process seems a little bit “pie in the sky”. Even though the 10 day window does not describe the entire process, the loss mitigation departments at the banks are still struggling with being understaffed and overworked.
  3. There is no enforcement for not following the guidelines. There are no repercussions (other than consumer complaints) if things take 20, or 30 days, or if the terms aren’t followed as outlined.
  4. Financial incentives are low – $1000 incentive payouts aren’t really that much in the scheme of the amount of work involved to process one of these deals. 2nd lienholders in particular can get $3,000, but that’s only marginally more than they are getting today. Since lenders aren’t able to utilize deficiency judgments under HAFA, they also lose the ability to try and collect some of those outstanding amounts. This is important, because lenders often sell these for reduced values to other debt collection firms. Those are tangible assets for a bank that are essentially wiped out.
  5. Paperwork standardization – Banks are all using their own short sale packages today. Mix in some of these government HAFA files into the same loop and it’s going to get them even more confuse than they already are.
  6. Removing the case-by-case analysis that short sales need: Every short sale transaction is different, and lender should approach them as such. HAFA requires lenders to identify their minimum net proceeds ahead of time, and the guideline requires 120 day period to change that value. This means that if a property falls outside of the minimum net proceeds, it isn’t eligible under HAFA. That’s a shame; because the house is worth what the house is worth, and even in the span of 120 days the criteria used can change. It removes flexibility from the process, which is critical when handling these transactions.

Still, many remain excited about the program. We, however, tend to think the impact it will have will be marginal at best.

For investors, the good news is that they can still process their transactions the same way they did before for non-HAFA transactions. HAFA transactions have clauses in them that are a little bit contradictory. For example, when it comes to title seasoning and property reconveyance, the short sale agreement (SSA) must state:

Notice that the sale must represent an arm’s length transaction and that the purchaser may
not sell the property within 90 calendar days of closing, including certification language
regarding the arm’s length transaction that must be included in the sales contract.

However, Page A1-1 states:

4) there are no agreements or offers relating to the sale or subsequent sale of the property that have not been
disclosed to the Servicer.

indicating that (once again!) disclosure is critical in the transaction and that a subsequent sale may be allowable. It is going to be a bit of “play it by ear” and case by case analysis as this program rolls out. All we can recommend here is that you contact your lawyers to make sure you cover yourself and always disclose, disclose, disclose!

So, what do you think? What will the impact of the HAFA program be? Is it truly a “Piece of Crap”? Post in the comments below!

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Comments (20)

  1. Bank of American just can not close the HAFA loan. We have had a buyer since October, 2011 who has cash and had offered $11,000 more than the bank appraisal and they just can not get the closing date scheduled. Paperwork, allegedly completed has been in the hands of the investors or so Equator system says and they still just can not get it done, do not return calls, escalation personnel or their management do not return calls, customer complaints do not result in any action. The personnel turnover, lack of management oversight and I could go on with how many times I have updated the same information, how many times it missed diary dates, was assigned to no one and still they just do not care. The buyer has indicated that they will go if this does not close by the end of this month. Is there anyone out there that would like a juicy class action suit? The lawyers that handle almost exclusively short sales and the like indicated that this is the situation, at least in Illinois with almost all of the loans. I am not talking about a few extra weeks here. I am talking about a year now. Who can help get this done?

  2. I am in the process of closing on a shortsale with Chase Bank. So far, we have had two negotiators. Chase is giving a $20k incentive plus the 3k for HAFA. Any comments?

  3. This has been a process for me as well with AMS-Servicing and Bank of America! Went through the whole short-sale process. No one wanted to buy even made an offer. Submitted Deed-in-lieu packet in April 2011. Called and follwed up everyday until DEC.2011 finally got somewhere(so I thought)My Deed-in-Lieu was approved. AMS rep told me that I should be reciving paperwork in the mail shortly. They said this would have all the terms and conditions and move out date. I was like "cool"! Waited 3 weeks for the paperwork and nothing! I Call on Jan.05 2012 and the rep says, "well you haven't sent in the paperwork and today is the last day for you to sen it in! I was so pissed. I said how can I send you something that I never received. They emailed me a packet but it was not even my information but someone else's. (Including SSN#'s other personal info). Had to call back and finally! I sent the packet back in an hour and moved out of my house on the 22nd of January! Have been calling EVERYDAY and it is always the same answer. "You should have received your attourney docs by now" I am going to escalate your issue to a B of A supervisor. They have 48 hours to respond. Well like 24 "escalation emails to BOFA supervisors nothing has been resolved! Same story every time I talk to them. Me and my husband are living in and out of our car, waiting for the "relocation assistance". With out that, we are going to be living in that car for a while!

  4. We have PMI insurance on my loan mortgage. Because of this no banks have been willing to work with us. If we do a short sale, shouldn't the PMI cover the balance of what was left on the mortgage after the short sale? If not, what in the heck is the insurance for?

  5. I completed what I hope is a hafa sale with Chase. However, they stiffed me the $3000.00 saying I hadn't lived in the house in the last 2 years. Even though they had sent someone every month to take pictures to prove I was there. Don't assume you will get the $3000.00. Oh and when I tried to move out the end of 2010, they told me I couldn't move if I wanted to qualify for Hafa. So I stayed until they said the rules changed and I could go. After the house sold, they said I didn't qualify for the money because I couldn't prove I had lived there. My bank statements came to my P.O. Box and that was the only thing they would take as proof. They are crooks! Plain and simple.

  6. Sorry to hear about the problems people are having. Meanwhile, I know a jackass who was just approved through this program. He makes good money but weaseled the system to get approved. It's people like him that ruin things for everyone else.

  7. I'm on Month 5 of an all cash deal that has been approved and yet I still can't get the final HUD. Yes this a HAFA sale and it goes into foreclosure tomorrow. Everything is done and they still can't get it done. Unbelievable!

  8. Just completed a HAFA sale. It was a long tedious process. We had an awesome realtor who aggressively saw the process through.It was a nightmare but it is finally over. I feel for all of you going through this nightmare (I have been there. Good Luck.

  9. the real estate attorney hasn't done her homework .. doesn't know the HAFA rules I have to research and tell her.. the 3rd agent doesn't have a clue about HAFA .. they all say they have experience w/short sales but they don't know squat about HAFA .. the bank is jerking everyone's chain .. and dragging this sale out to a ridiculous extreme .. the back up buyer wants the house .. but now the house will have to be winterized because the bank won't proceed. They want to start the whole regular short sale process for a 3rd time! There's not enough reward in this for the real estate agents to stick it out .. nor the attorney.. does anyone know if there is a any recourse? heard on anyone who HAS had HAFA short sale go through?

  10. I agree with Paul here. You need to consult professional advice when approaching these banks. As of late the banks seem to be trying to get everyone qualified into HAFA. Although $3,000 may not be substantial in the big scheme of things, it may help some borrowers out there. We have seen some success with some of the bigger lenders so just try to be persistent when dealing with these lenders.

  11. You will need to get a lawyer or some professional advise. These banks are not going to stop this abusive behavior. I know went down that rd and was disquallified for hafa but they wanted to do there own short sale on there terms. Its all about the deficiency judgments.

  12. having SAME problems as ALL discussed above .. w/Wells Fargo .. taking more than 1.5 yrs so far since heard about HAFA and asked them to assist .. always a different rep on the phone.. some are nice sympathetic .. lately they are aggressive and accusatory .. ALWAYS the process is going to take 45 MORE business days .. and yes .. they ignored HAFA, processed their own short sale program, buyer walked and I would NOT accept the deficiency judgement, so we started all over w/HAFA .. they want to reject again . back up buyer is going to walk .. winter is coming upstate house too expensive to keep warm. .. will have to be abandoned by me seeking affordable warm place for winter .. looking for a class action law firm pursuing this abuse .. the banks want their bailout w/o any strings attached ..

  13. I went through a short sale after my father passed away suddenly and I could not afford the home that he and I shared. I thought HAFA would be my saving grace because I met EVERY qualification. Little did I know how greedy Chase could be. They had a full price offer for FOUR months. They kept asking for the same paperwork over and over and saying "We're working on it". I then got a phone call out of the blue from LCS Financial - a collection agency hired by Chase. Oh - and they don't participate in HAFA. So, rather than $2500 that Chase would have gotten had they followed the rules under HAFA, they got so much more. They got their $2500 plus my $3000 I was to be alloted for moving expenses under HAFA plus another $1000 I had to bring to the table. Oh, it didn't end there, though. That was just to get them to allow me to sell the house. This "collection agency" wouldn't release me from the deficiency. I had to negotiate a settlement with them or pay the balance for the next 10 years. Nothing like negotiating with a gun to your head. In addition, any settlement needed to be approved by Chase, even though they kept claiming they weren't in charge of the account anymore. They ended up getting over $16,000 on something they would have gotten $2500 through HAFA. Nice way to work the system. Something needs to be done about this!!!! People do everything they ask, only to be blind sided and completely screwed by these banks.

  14. Yes, seems to be Bank of America should be boycotted. it is a war form the bank to american people

  15. I have done everything for Bank of America to qualfify for HAFA, my home as an offer and contract pending. I now find out Bank of America placed my home under a traditional short sale without my permission. For months I was under the impression my home would be protected under HOFA. Is this legal or right to do? My realator and I have made NUMEROUS calls to the bank and cant get a staight answer. I need advice!

  16. We were qualified for the HAFA program when my husband was laid off (along with 8,000+ kennedy space center workers). We were enrolled for two months when husband got new job offer. According to HAFA they would pay up to $3000 relocation costs. After 2 weeks on the new job (in another state!) we were declined from the program because we were not living in the home!!! However AMS stated bank of america had no grounds to decline us since we were enrolled and living at the address when we were accepted into the program. So we filed an appeal and were told to re-enroll. So we did. This time we were declined because my husband has a job and our income to debt ratio is 30% and the requirements for the program is 31%!! Of course this wasn't the case when we first qualified and they didn't take into account that we are paying rent in another state so that my husband CAN have a job! All the while we had a short sale offer, (but couldn't be accepted because we were waiting on a HAFA letter of approval - which took so long we had been declined from the program twice before we got it!) And since we were declined and had to re-enroll, we had to start over with the short sale offer as well - which I still don't understand why!!! Now, after 6+ months, the original offer was declined, and now we are starting over AGAIN with a new short sale offer! WHAT A MESS!!!! I've been mislead, misinformed, decieved, lied to and defrauded by Bank of America and not in just this matter, don't get me started on credit card and overdraft fees!!!! My advice - don't expect anything but frustration and deceit from Bank of America!

  17. I was finally approved for the HAFA program last March after months of haggling with AMS (BofA's HAFA servicer). We received an offer the following April. The buyer had been approved for financing by his own bank and the funds were ready to go. BofA last conducted a BPO (appraisal) the previous December and came up with a price of $120. Even though the offer was for the FULL amount of $120k that BofA was asking for, they took almost a month to approve it. The buyer's bank conducted their own appraisal and it came out to $110k, which makes sense because it's a declining market and it had been over 5 months since the last appraisal. BofA was supposed to have been conducting a BPO every 90 days but they were not. As a result, BofA now wants to conduct their BPO before they will accept $110k from the buyer's bank, a process I'm being told could take up to 6 weeks, which would put us at about 3 months since the offer was made. The buyer is becoming impatient and is preparing to walk away from the deal. For all of the talk about how streamlined and efficient the HAFA program is, I'll I've found is that every deadline that they are supposed to have met under this program has been missed by several days. Every time my agent or myself calls AMS to get information about the status of an approval or a BPO either nobody knows anything or we're told that the person to talk to is not available. I'm told that even if the short sale falls through I may be eligible for a deed-in-lieu but the truth is, it seems like BofA is doing everything in their power to thwart my efforts at avoiding foreclosure so I'm not very optimistic about being approved for a deed-in-lieu. I would really like to know who is supposed to be holding the banks' feet to the fire to ensure that they meet all these guidelines that they claim are suppose to be part of this HAFA program that they say is so great and what, if any, penalties are imposed on them for not meeting them.

  18. I am also sick of banks. Especially Bank of America. I was glad to see that they are being sued by several buyers who tried to work their way through BofA's system. We got a few short sales approved but it was brutal. the only one worse if Chase. What I hope is that borrowers and our industry remembers when this is over who was the bad guys. They should never get another customer for banking or mortgage because of their current behavior

  19. good post Nick. Great info.

  20. One major item that everyone keeps forgetting. The property owner has to participate in the program. They can turn it down and attempt to work out a Short Sale without using the HAFA program. So, if you so not want to play the HAFA games, just do business with property owners that are not using the HAFA program.