GSEs Fannie Mae and Freddie Mac released announcements on June 1, 2010 stating their adoption of the Home Affordable Foreclosure Alternatives Program (HAFA). For an overview on HAFA see previous article: “Selling Underwater”.
Fannie Mae’s released a 22-page Announcement (SVC-2010-07) with details on their implementation.
The following is a synopsis of the key points:
Implementation - All servicers must implement Fannie Mae’s HAFA for all conventional mortgage loans that are held in Fannie Mae’s portfolio.
Effective Date - Servicers are encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately; however, servicers are required to implement these policies and procedures no later than August 1, 2010.
Documents - Servicers must use the following documents: HAFA Short Sale Agreement, HAFA Request for Approval of Short Sale (RASS), HAFA Request for Short Sale Approval Without Short Sale Agreement (Alternative RASS), HAFA DIL Agreement.
Bankruptcy - A borrower in an active Chapter 7 or Chapter 13 bankruptcy case must be considered for a Fannie Mae HAFA short sale or DIL if requested by the borrower, borrower’s counsel, or bankruptcy trustee.
Foreclosure - A servicer must continue to pursue a pending foreclosure while evaluating a borrower’s eligibility for a Fannie Mae HAFA short sale or DIL, waiting for the timely return of the signed agreement and all supporting documentation, and for the duration of the agreement. The servicer must advise the borrower that the foreclosure proceedings will continue while the property is listed for sale.
The servicer must suspend any foreclosure sale scheduled:
• During the term of a fully executed HAFA Short Sale Agreement (provided the borrower is complying with the terms of the agreement),
• Pending transfer of property ownership based on an approved sales contract (until the closing date stated in the approved sales contract), and
• Pending transfer of property ownership via a DIL provided the transfer occurs before the date specified in the HAFA DIL Agreement.
Valuation - As soon as a borrower is determined to be eligible for a Fannie Mae HAFA short sale or DIL and has demonstrated a willingness to participate, the servicer must take necessary steps to determine the market value of the property. Fannie Mae will require a broker price opinion (BPO) based on an interior and exterior inspection of the property or, if licensing requirements in the state dictate use of an appraisal for these purposes.
Approval Turnaround Time - The servicer will send to the borrower a HAFA Short Sale Agreement no later than 14 calendar days after the later to occur:
1. The servicer’s determination that a borrower meets the basic eligibility criteria described in this Announcement and,
2. Fannie Mae’s communication of the MANP to the servicer.
Listing Oversight - The servicer must actively oversee the sale of the mortgaged property by communicating with and providing instruction to the listing agent. At a minimum, the servicer’s duties and responsibilities are as follows:
1. Establish a list price that reflects current market conditions;
2. Review the listing agent’s marketing plan;
3. Obtain monthly feedback from the listing agent;
4. Obtain monthly geographical comparables from the listing agent;
5. Make adjustments to the list price as necessary;
6. Review each sales contract in detail;
7. Work with the title company to resolve any issues that may delay the closing;
8. Provide instructions to the title company;
9. Review the HUD-1 Settlement Statement for accuracy within 48 hours of closing; and
10. Ensure the sales proceeds are received on a timely basis.
Allowable Transaction Costs – Allowable transaction costs typically include:
• Real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;
• Real estate taxes and other assessments prorated to the date of closing;
• Local and state transfer taxes and stamps;
• Title and settlement charges typically paid by the seller;
• Seller’s attorney fees for settlement services typically provided by a title or escrow company;
• Wood-destroying pest inspections and treatment, when required by local law or custom;
• Homeowners’ or condominium association fees that are past due, if applicable;
• Allowable costs include any amounts authorized by Fannie Mae.
Prohibited Costs - Fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must not be deducted from the sales proceeds or charged to the borrower. Additionally, the servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan.
Offer Receipt and Response - To enable the servicer to evaluate a bona fide sales contract, the borrower must provide the details of the sales contract using the RASS or the Alternative RASS, as applicable. The listing agent and borrower must submit the complete and executed RASS or Alternative RASS to the servicer along with supporting documentation within 3 business days after receipt of a fully executed sales contract. The borrower must provide the following supporting documentation:
• A copy of the executed sales contract and all addenda;
• A copy of the listing agreement, if any, if not previously provided;
• All information readily available to the borrower regarding the status of other liens on the property; and
• The buyer’s documentation of funds or pre-approval or commitment letter on letterhead from a mortgage lender indicating that the buyer is approved for financing sufficient to complete the purchase of the property. The only acceptable condition of approval is the completion of an appraisal reflecting a property value equal to or greater than the purchase price stated in the sales contract or a satisfactory inspection of the subject property.
The servicer must respond to the borrower within 10 business days of receipt of a completed request and required documentation.
Servicer response must indicate acceptance or rejection of or a counter to the offer.
Closing Date - Accepted offers must close no later than 60 days after the contract execution or approval by the servicer or Fannie Mae, whichever occurs later. The Servicer may not require the transaction to close in less than 45 days of the dated sales contract without the consent of the borrower.
PMI Insurer Approval - Fannie Mae is working with mortgage insurers to obtain delegations of authority so that servicers can more efficiently process Fannie Mae HAFA short sale and DIL requests without the need to obtain mortgage insurer approval on individual mortgage loans.
Borrower Incentive - The borrower will be entitled to an incentive payment of $3,000 to assist with relocation expenses following successful completion of a HAFA short sale or a DIL.
Coming soon… Part Two in series “Selling Underwater” on how to process contracts and listings under HAFA.
