Short Sale Incentives Coming in 2010

Short Sale Incentives Coming in 2010, Treasury Says

As HousingWire first reported, the US Treasury Department will launch the Home Affordable Foreclosure Alternatives Program (HAFA) in 2010.

HAFA will complement the Home Affordable Modification Program (HAMP) by providing financial incentives to servicers, borrowers and investors to go forward with short sales or a deed-in-lieu, according to a Treasury announcement late Monday (available to download here).

In a short sale, the bank sells the property for a price short of the balance owed on the property’s loan.

Under HAMP, the Treasury allocates capped incentives to servicers for the modification of loans on the verge of foreclosure. Borrowers must be HAMP-eligible to qualify for HAFA and must be considered for the new program within 30 days of failing to qualify for or complete a HAMP trial.

Borrowers must be able to provide the buyer of the home with a clear title. Any subordinate liens must be paid off in full. The borrower can also negotiate with the holder to release the liens before the closing date.

HAFA allows the borrower to receive pre-approved short sale terms before the property is listed and frees them from future liability for the debt. Also, servicers utilizing the program are prohibited from requiring a reduction in the real estate commission agreed to in the listing agreement.

The borrower also receives a $1,500 incentive for relocation after the transaction. The servicer receives a $1,000 incentive to cover administration and processing costs, and investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid out to subordinate lien holders. In total, each transaction under HAFA will cost the Treasury up to $3,500 of incentive payments.

HAFA will officially launch on April 5, 2010, but servicers can implement the program prior to that date. However, in order to participate in the program, the servicer must have signed a HAMP servicer participation agreement by Dec. 31, 2009.

HousingWire first reported on HAFA’s forthcoming launch in October, when the chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on HAFA when she spoke at the Mortgage Bankers Association’s annual convention in San Diego.

Two weeks later, Herb Allison testified before the Congressional Oversight Panel (COP), which reviews actions taken by the Treasury, and indicated guidelines were being developed.

Rob Alley, Realtor at Keller Williams Charlottesville
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