Realtors and title companies are not qualifying homeowners for a short sale, specifically when the homeowner wants to stay current on their mortgage.
When a homeowner is applying for a short sale, initial paperwork is often submitted to the Making Home Affordable (MHA) program through the Home Affordable Foreclosure Alternatives (HAFA), bypassing Home Affordable Modification Program (HAMP).
It has become a common practice to encourage underwater homeowners to be delinquent because the delinquency provokes action from loss mitigation departments. And, it is common to hear major lenders promote a “faster track” of service for “already 90 days delinquent” homeowners at homeowner seminars. However, more and more homeowners are insisting on staying current throughout the short sale process, even with an acceptable hardship. And homeowners want to stay current on their mortgage for a variety of reasons: 1) fear of what negative credit will do to the growth of small businesses, 2) inability to be delinquent due to jeopardy to security clearance for government employees, 3) resistance to lifelong habit of building and keeping good credit, and a host of other reasons.
If a homeowner enters through HAFA and then insists on being current on their mortgage, the short sale request is typically escalated to the investor level. Most investors require a delinquency in order to approve the short sale, even though HAFA allows current mortgage payments through “imminent default” (which means current, but will be delinquent in the foreseeable future). The reason for the denial of a short sale when a homeowner is trying to stay current through the process is hard to receive. In most cases, the denial comes back with the Reason for Denial left blank. Upon finding that the investor is requiring the delinquency, homeowners or agents need to question and press why the homeowner was not able to proceed with the short sale while staying current. Press this and the answer is commonly that the homeowner did not enter MHA through HAMP 1st. Hamp “waterfalls” to HAFA, and if the entry is not through HAMP 1st, the waterfall is from HAFA to the investor guidelines.
Lender HAFA Matrixes
59 participating lenders were asked by the U.S. Treasury to provide a Home Affordable Foreclosure alternatives (HAFA) Matrix that outlines short sale detail.
In researching all HAFA Matrices content:
- 59: total Participating Lenders
- 13: no HAFA Matrix or criteria available
- 46: lender data being used
- 41, or 89% of lenders allow Imminent Default
- 15, or 32.6% of lenders state borrower can be current
- 30, or 65.21% of lenders state payments required