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01/ 31/ 2011

Treasury's HAFA Revamp Effective Feb. 1 

The Treasury Department has revamped its short sale program by easing income restrictions and documentation requirements for homeowners facing foreclosure. The changes are effective Tuesday, Feb. 1.   

Changes made under Treasury's Home Affordable Foreclosure Alternative (HAFA) program make incentive payments more attractive for second lien holders and for borrowers completing a short sale, or deed in lieu transaction.

Travis Olsen, Chief Operating Officer at Loan Resolution Corp., expects the changes will lead to a big jump in HAFA enrollment. "A lot more people are going to qualify for the program," he said.  "Elimination of the debt-to-income requirement along with the relaxed non-owner occupancy rule makes it easier for those who do qualify to get their short sale successfully closed."  LRC is a Scottsdale, Ariz., vendor that specializes in short sales.

Delinquent homeowners entering the program only have to prove that they used the house as their primary residence at some point in the last 12 months.  Previously, it was the last 90 days. Home owners can qualify for the HAFA short sale program if they have moved across town and the property is vacant or rented to a non-borrower.

Borrowers are entitled to a $3,000 relocation incentive payment when a short sale or DIL is completed. When a deed in lieu transaction is completed, the servicer can make the incentive payment even if the borrower stays as a renter under the HAFA changes.

Servicers will have the option to pay the borrower a relocation incentive either upon a successful surrender of title or when the borrower vacates or re-purchases the property at a future date, according a TARP Inspector General report.

Treasury has retained a $6,000 cap on paying off second lien holders but removed a separate cap on paying more than 6% of the unpaid principal balance.

Olsen noted that second lien holders generally want 10% of the UPB to extinguish a home equity loan.  Previously, the HAFA cap limited the payoff to $3,000 on a $50,000 HEL.  Now, the servicer can pay the $5,000 to satisfy a 10% demand.