The Spin Doctors are at it again.
I’ve been sitting back watching, reading about, and listening to, all the hype about the changes that have been made to the Treasury Guidelines for the HAFA (Home Affordable Foreclosure Alternatives) Program.
From the very beginning of this program last April, there’s been lots of high fiving, back slapping and baby kissing going on and, if you believed the bullet points and sound bites, this program would not only save you from the financial devastation and social humiliation of a foreclosure, it would send you away from the closing table with money in your pocket and a guaranteed mortgage in your future (they stopped short of giving out toasters.)
The “We Can Negotiate a Short Sale For You in 30 Days” crowd has been out in force dangling the HAFA carrot in front of the unwary homeowner and the “Pay Us An Exorbitant Amount of Money So You Can Use Our Specialist Designation to Generate More Distressed Homeowner Prospects” crowd is also out in force touting how easy a short sale is now (if you just take their course that is) to the unwary and uneducated Real Estate professional. (For more on how I feel about reducing people to prospects see my post entitled “Real Estate – A Numbers Game?”)
The Hype has, from the start, made it sound like the process is a breeze…you realize you are in trouble and the responsible thing to do is to try to make a Graceful Exit (the Making Home Affordable website even has a video entitled “Your Graceful Exit” touting HAFA), you contact your lender and tell them, they quickly and seamlessly collect your financial information and a valid and reasonable price opinion on your house and then present you with an agreement that includes the price they will accept and the terms under which they will accept them and send you off to sell your home in a specified length of time. You can now sleep soundly at night secure in the knowledge that your lender has agreed to accept the net proceeds as their total payoff for your loan and has waived their right to go after you for any deficiency.
And now, according to the spin-doctors, it’s even easier since Treasury has “removed the requirement” that the borrower’s financials be verified and also removed the requirement that the borrowers mortgage payment exceed a 31% debt to income ratio.
Easy Peezy Lemon Squeezy!
Not so fast!
The reality (which the spin doctors never seem to mention) is that there are three sets of guidelines out there as to how the HAFA program must be implemented…one for Fannie Mae backed loans, one for Freddie Mac backed loans and one for the Non-GSE investors (who may or may not choose to participate) and the Treasury Guidelines only apply to the Non GSE loans.
So, it’s easy, peasy, lemon squeezy only for the small percentage of loans that are owned by investors who can, in the end, decide not to participate in HAFA at all.
For the vast majority of the distressed loans out there which are backed by Fannie Mae or Freddie Mac, no such simplification has been made. Further, Servicers appear to be having a very difficult time keeping the guidelines straight much to the detriment of the nation’s distressed homeowners.
For instance, Freddie Mac guidelines say that a borrower must be 60 days in default in order to be eligible for the program. Fannie Mae has no such requirement but does prohibit the Servicer from offering the program to a borrower if a foreclosure sale is scheduled to be held within 60 days of the borrower's request for HAFA or a foreclosure sale could be initiated and reasonably expected to result in a foreclosure sale being held within 60 days.
Another example is; Fannie Mae and Treasury allow a homeowner to accept an offer on their property prior to being evaluated and issued a Short Sale Agreement. Freddie Mac, on the other hand, will drop kick the borrower out of the program if they do that.
And that’s just the tip of the iceberg.