Treasury Unveils Foreclosure-Alternatives Directive

Posted by Orb Staff on December 01, 2009 No Comments
Categories : Mortgage Servicing

The Treasury has issued a new supplemental directive introducing incentives for short sales and deeds-in-lieu (DILs) executed under the Home Affordable Modification Program (HAMP). The directive includes the general terms and conditions, evaluation process, documentation and reporting requirements associated with the foreclosure alternatives.

The program is designed for HAMP-eligible borrowers who do not qualify for a trial-period plan, do not successfully complete a trial-period plan, are delinquent on a HAMP modification or who request a short sale or DIL.

According to the supplemental directive, "Each participating servicer must develop a written policy, consistent with investor guidelines, that describes the basis on which the servicer will offer the HAFA program to borrowers. This policy may incorporate such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions and borrower motivation and cooperation."

For short sales or DILs that qualify for Home Affordable Foreclosure Alternatives (HAFA) incentives, borrowers stand to receive $1,500 to cover relocation expenses and servicers will be paid $1,000 to cover administrative costs.

For short sales, investors that hold the first mortgage collect $1,000 in exchange for allowing subordinate lienholders to receive up to $3,000 of sales proceeds.

The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating several unique features, the Treasury says. Servicers will be able to use borrower financial and hardship information collected in conjunction with HAMP, which the administration says should eliminate the need for additional eligibility analysis. Borrowers are also allowed to receive pre-approved short-sale terms prior to the property listing.

Additionally, servicers are prohibited from requiring as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement, and borrowers must be fully released from future liability for the debt.

Supplemental Directive 09-09 is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to that date, in accordance with the directive.

SOURCE: Treasury Department

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