HAFA Short Sale With Aurora Loan Servicing- Yet Another Case Of The Inmates Running The Asylum
Earlier today, I wrote a blog post discussing the problems with the HAFA program, and the potential devastating effects if may have on your future success rate of closing short sales. This post describes an actually case with a HAFA short sale that was denied just yesterday by Aurora Loan Services.
By now, you've probably heard about the abysmal "success rate" of the HAFA (Home Affordable Foreclosure Alternative) program that was officially launched on March 31, 2010. In 2010, there were a total of 661 HAFA short sales approved (about 12 per state) over the course of 8 months, according to CNBC. They also go on to say that approximately 11 million homeowners are now underwater. Let's see, 661 out of 11 million people helped. Yep, HAFA is a real "game-changer".
Trying to clean the egg off their face, the US Treasury announced changes to the program that were intended to allow more borrowers to participate. Among the announced changes, one in particular stood out as a "game changer" according to several so-called "short sale experts".
The blogosphere was abuzz with the fact that servicers were no longer required to determine that the borrowers mortgage payment exceeded 31% of the gross income. Under the original program, if this criteria was not met, the borrower was immediately rejected for HAFA. Please notice the words no longer required. Here is an excerpt in the "revised" HAFA program, which was announced on December 28, 2010, and went into effect on February 1, 2011:
Monthly Gross Income
With respect to HAFA eligibility, servicers are no longer required to verify a borrower’s financial information or to determine if the borrower’s total monthly mortgage payment (as defined in Section 6.1.2 of Chapter II of the Handbook) exceeds 31 percent of the borrower’s monthly gross income as currently set forth in Section 2 of Chapter IV of the Handbook. Servicers must continue to verify the borrower’s hardship by obtaining a signed Hardship Affidavit or Request for Modification and Affidavit (RMA). Notwithstanding the foregoing, each servicer may include a requirement in its HAFA Policy that borrowers provide updated financial information to evaluate the borrower.
So, you ask, "What's the big deal? Please notice the underlined text. The revised policy basically allows the servicer to continue to use their own judgement when determining if a borrower qualifies for HAFA. In other words, the rules aren't really rules. They are guidelines. And guess what? The lenders know this, and are using it to their advantage.
Just yesterday, one of my Phoenix short sale clients was rejected for HAFA. This is the email I received from an Aurora underwriter:
Bob,
I have reviewed this HAFA short sale request. After reviewing the financials, I believe the seller could afford the mortgage payment if they made some adjustments in other places. For that reason, I am not able to approve the HAFA short sale request. However, I am going to review it via our traditional short sale program.
Nice huh? "If they had made some adjustments in other places"? So, is the underwriter at Aurora a Financial Consultant? So much for yet another government-sponsored program falling flat on it's face. Never mind the fact that it took them two months to review them for eligibility (HAFA specifically states they have 30 days to determine eligibility). I spoke to the underwriter on the phone today, and she specifically pointed out that under the revised HAFA program, the servicer is allowed to have their own policy in place to determine eligibility (as she basically did in her email).
But what does Aurora care? They are fully protected by HAFA on this one.
From now on, every short sale listing I take will have a signed affidavit from my client, specifically requesting that they not be considered for HAFA. The program simply allows the servicer to delay an already slow process, and I'm not too fond of having my Phoenix short sale clients commit to a Deed-In-Lieu after the servicer drags their feet in order to charge more fees.
Lenders are now begging borrowers to be considered for HAFA. Gee, I wonder why? My advice is to submit your short sales in a traditional manner, and forget about these comical attempts that the current administration is making to "help homeowners". And, before believing everything you read from some of the self-proclaimed "short sale experts" about how wonderful HAFA is, do yourself a favor and do your own research. One organization in particular bought the HAFA hype, with their CEO calling it a "game-changer", and it has cost their reputation dearly amongst those of us who are actually "in the trenches" everyday. HAFA simply gives servicers the right to do whatever they want, under the auspices of a government sponsored program.
Stop giving the servicer a license to determine the eligibility of your clients. Stop giving them the right to take your client's home through a DIL. In Arizona, we have an anti-deficiency statute that provides us a pretty big stick when it comes to negotiating short sales. I'll continue to use that stick, as it has provided tremendous success for my Phoenix short sale clients in the past.
Like I've said many times before, without any oversight/accountability, these programs will continue to fail, and I'm sick of wasting my time working with them.
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Bob Hertzog
Summit Home Consultants
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Copyright © By Bob Hertzog 2011 *HAFA Short Sale With Aurora Loan Servicing-Yet Another Case Of The Inmates Running The Asylum*