As the new HAFA program attempts to streamline the short sale process, Mortgage Guaranty Insurance Corp. (MGIC) released new guidelines for servicers wanting a quicker route to approvals. Under the Home Affordable Foreclosure Alternatives (HAFA) program, the Treasury Department provides incentives to servicers to provide short sales and deeds-in-lieu of foreclosures to borrowers who fail a modification through the Home Affordable Modification Program (HAMP). One of the benefits of the program, officials said, is that it cuts down the approval time for short sales. In the past, the process usually took upwards of six months. A short sale agreement between the borrower and the servicer under HAFA expires after 120 days. Servicers must get approvals from the lender, investors and, if applicable, insurance companies to execute the agreement. The new MGIC guidelines give an automatic go-ahead if the loan meets certain criteria. The borrower must be at least 60 days delinquent on the owner-occupied property. The loss on the sale must be less than $75,000, based on a broker price opinion (BPO) or appraisal performed within 90 days of the sale. The property must not only be sold in “as-is” condition, but the sales price must be within 90% of the home’s value after repairs. Net proceeds at closing must be at least 82% of the “as-is” value. The borrower cannot receive any of the funds for the short sale and must prove hardship before the MGIC prior approval. Acceptable hardships include job loss, involuntary relocation, divorce, reduction in income used to sustain mortgage debt, serious illness or a call to military duty. After determining credible hardship, servicers must look into the borrower’s financial situation. The short sale goes through if the borrower’s monthly cash flow is less than or equal to $200, short-term savings are less than the total of three full mortgage payments and long-term savings are less than or equal to $50,000. If these guidelines aren’t meant, the servicer must submit the short sale request to MGIC for approval. Write to Jon Prior.
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