Struggling HAFA Gets A Revamp
National Mortgage News

By Brian Collins


WASHINGTON-Since launching its short sale effort last April, the Treasury Department program has not exactly gotten off to a galloping start.


To date, only 2,181 short sales and deed-in-lieu of foreclosure transactions have been completed, according to a TARP inspector general report. (The figures represent accomplishments at yearend 2010.) Treasury has paid out just $9.5 million in incentive payments to borrowers, servicers and second-lien holders.


Over the past few months the agency worked on revamping its Home Affordable Foreclosure Alternative program with the changes going into effect last week.


Travis Olsen noted that very few short sales were completed in the HAFA program during the first six months, but he expects a lot more people are going to qualify for the new HAFA. "We are having great success with them especially with the latest revision of the program," said the chief operating officer of Loan Resolution Corp. (The Scottsdale, Ariz., vendor specializes in short sales.)


In tweaking the program, Treasury eliminated the income restrictions and reduced the documentation requirements on homeowners facing foreclosure.


"A lot more people are going to qualify for the program," Olsen said. And he expects to see a big jump in HAFA enrollment.


The department also made the incentive payments more attractive for second-lien holders and for borrowers completing a deed-in-lieu transaction. But Olsen contends Treasury could do more to make the HAFA program more competitive.


The Office of the Comptroller of the Currency and Office of Thrift Supervision recently reported that nine of the largest bank and thrift servicers completed 56,250 new short sales in the third quarter, up 83% from the same quarter in 2009.


Treasury 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, which can make a big difference.


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


Treasury has set aside $4.1 billion of Troubled Asset Recovery Program funds to pay for HAFA and the COO would like the department to increase the incentive payment for second-lien holders to $8,000. "There are a lot of second-lien holders and mortgage insurance companies that say $6,000 is not enough," the Loan Resolution Corp. executive said.


He also says Treasury could go one step further and provide an incentive for real estate agents. "Real estate agents are very influential in getting a homeowner to participate in a short sale," Olsen said. A short sale takes a lot of time and effort.


If Treasury promised an extra 1% commission, "it would really turn their heads," the short sale expert said.


Meanwhile, Treasury has made it easier for delinquent borrowers to sign up for the HAFA program and benefit even if a short sale is not successful and they hand the title over to the servicer. 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.


Now, the owner can qualify for the HAFA 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 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.


"Servicers will have the option to pay the borrower 'relocation' incentive either upon the successful surrender of the title or when the borrower vacates or repurchases the property at a future date," according to the TARP inspector general report.