Changes to HAFA Program Starting March 9, 2012

The Making Home Affordable Program has been extended and expanded, including major changes to the HAFA short sale program beginning March 9, 2012.  The HAFA short sale program now provides the following:

1. There are no occupancy requirements;
2. A servicer is now allowed to accept a full payment if the borrower wants to stay current even though the payment exceeds 31% of the borrower's gross income;
3. A servicer may authorize an $8,500 payment to a subordinate mortgage holder instead of the prior cap of $6,000 in exchange for a lien release and full release of borrower liability on the debt. Investors will continue to be reimbursed one dollar for every three dollars of short sale proceeds paid to a subordinate mortgage holder up to $2,000;
4. Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time the Short Sale Agreement or DIL Agreement is executed and who will be required to vacate the property as a result of the sale or DIL. The HUD-1 statement must reflect payment to the borrower or tenant, when appropriate.
5. Credit bureau reporting of HAFA transactions where the deficiency balance is forgiven are to be reported as: "Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
6. A borrower has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.

In California, mortgage holders cannot collect a deficiency debt following a short sale or condition a short sale approval on additional contributions from the seller.  At the moment, Washington does not have such a law, so sellers are still vulnerable to subordinate mortgage holders strong-arming them into signing another note or contributing funds at closing despite the clear government mandate that the HAFA program is designed to relieve the seller of any further obligation on their mortgage debts.