New Treasury Dept. Short Sales Guidelines

From: NAR Government Affairs

Date: December 1, 2009

RE:   Short Sales Program Guidelines Issued by Treasury Department

The long awaited guidelines for Short Sales have been released by the Treasury Department.  The Issue Brief below contains a summary of the provisions and links to additional information.  This information is also available at www.realtor.org/shortsales. We encourage you to add this link to your websites

National Association of REALTORS® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001

Treasury Department Announces Home Affordable Foreclosure Alternatives Program On  November  30,  2009,  the  Treasury  Department  released  guidelines  and  forms  for its new Home Affordable Foreclosure Alternatives Program (HAFA).  HAFA is part of the Home Affordable Modification Program (HAMP).  HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program.  HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks. HAFA is a complex program, with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure.

HAFA:

Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.

Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).

Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).

Uses standard processes, documents, and timeframes/deadlines.

Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a

one-for-three matching basis).

The program does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements.

The program sunsets on December 31, 2012.

Press Release, HAMP Update—New Program Offers Borrowers Foreclosure Alternatives https://www.hmpadmin.com/portal/docs/news/hampupdate113009.pdf

Supplemental Directive 09-09, Introduction of Home Affordable Foreclosure Alternatives—Short Sale and Deed-in-Lieu of Foreclosure https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

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  • How many more new guidelines are going to be brought out. Are’nt there enough already to confuse everyone around.

  • Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.