Fannie and Freddie’s HAFA Program: Good News and Bad News
Fannie Mae and Freddie Mac loans were exempt from the HAFA short sale program that was put into effect by the Treasury on April 5, 2010. Fannie Mae has just created its own version of HAFA with regulations that you can find at http://shortsalesr.us/FannieMaeHAFA.pdf. Similarly, Freddie Mac has created its version of HAFA with regulations you can read at http://shortsalesr.us/FreddieMacHAFA.pdf .
Does this addition to HAFA make you happy? In general, the terms are similar to the Treasury’s short sale program that is supposed to expedite the review and approval of short sales by pre-approving the seler for the short sale and establishing the amount the lender will accept at the time the Short Sale Agreement (SSA) is entered into. In other words, you qualify the seller and get the amount needed from the sale at the time you list the property. However, there is a difference with Fannie and Freddie. With the Treasury’s program, the lender considering the short payoff may tell the Realtor how much they will settle for. For those of you who do a lot of short sales, they will specify the amount they want to be paid at closing as shown on line 504 of the HUD.
In the Fannie and Freddie program, the servicer is prohibited from telling the seller, buyer and Realtor what this amount is. Instead, the servicer will establish an asking price based on the condition of the market in the area. Who is better at setting an asking price: (1) the Realtor who works there every day or (2) a Loss Mitigation negotiator with files from all over America? When the contract is submitted, you hope that this asking price results in the Minimum Acceptable Net Proceeds (MANP). If you do HAFA short sales, you have to love the acronyms 🙂 .
Having the Broker Price Opinion or appraisal already done at the time the offer is presented is a benefit, and the servicer does not tell the Realtor what the acceptable net proceeds are in most of the non-HAFA short sales (except for FHA short sales where you know to the penny). So, in this manner the program gives a benefit of the BPO already being done and the same result as the old fashioned short sale where you play “guess again” on the amount the lender wants. But, it could have been better if Fannie and Freddie followed the Treasury’s lead.
The other bad news is that the servicer tells the Realtor how to market the property, and supervises the marketing plan. Again, who knows better what will work (1) the Realtor who has developed an effective program or (2) the loss mitigation negotiator who just took the HAFA training course. The guidelines mandate that the marketing program includes ” a “For Sale” sign, Multiple Listing Service(s), flyers, print ads, open houses as well as appropriate usage of the internet;” Few will argue with a for sale sign and putting it in the MLS, but open houses work less than 2% of the time according to NAR statistics. Print ads have dramatically fallen because they are not that effective. However, if you want to comply with the Short Sale Agreement you will do these things, because the agreement can be cancelled if you violate it.
Another problem is that a seller cannot be considered for a Fannie or Freddie HAFA short sale if a foreclosure is pending that could sell the property in 60 days, or if the state laws would allow a foreclosure in the next 60 days. States like Texas can go from a dead start to a full foreclosure in less than 60 days, so does that mean you cannot do a Fannnie or Freddie HAFA short sale in those states?
There are some great benefits. The servicer must respond to an offer within 10 business days. That beats the months of waiting we do now. The servicer must allow at least 45 days to close the sale after approval, with a maximum of 60 days. Also the foreclosure must be postponed during the sale period, which is at least 120 days.
The financial incentives are similar. The seller gets $3,000 in moviing assistance. The servicer gets more under Fannie and Freddie than the Treasury by receiving $2,200 for an approved short sale, as opposed to $1,500 for the Treasury.
So, like everything else in short sales, there is some good news and some bad news. But, at least there is a program that provides some tools that a savy Realtor can use to help a borrower in trouble.
For the complete Fannie Mae guidelines go to http://shortsalesr.us/FannieMaeHAFA.pdf and for the Freddie Mac guidelines go to http://shortsalesr.us/FreddieMacHAFA.pdf