The Department of Treasury has spoken and banks will have to comply.   On November 30, new guidelines were released that will change the face of loan modification and short sales. President Obama instilled these changes to help prevent more foreclosures, as well as streamline the loan modification and short sale processes.

“Supplemental Directive 09-09″, entitled “Introduction of Home Affordable Foreclosure Alternatives (HAFA) – Short Sale and Deed-in-Lieu (DIL) of Foreclosure” is part of the Home Affordable Modification Program (HAMP).

There are a number of guidelines that loan servicers must follow prior to recommending a borrower for HAFA or “Short Sale”.   Borrowers that meet the criteria for HAMP but who are not offered the trial plan,  do not successfully complete a trial plan,  or default on a HAMP modification should be considered for alternate types of modification prior to being evaluated for HAFA.

Some bullet points of HAFA criteria include:

* The property is owner occupied
* The mortgage loan is a first lien mortgage originated on or before January 1, 2009
* The mortgage is delinquent or will be in the foreseeable future.
* The current unpaid balance is equal to or less than $729,750.00; and
* The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.

*A huge aspect of this program is that if the borrower follows through on the HAFA program, once the servicer accepts the short sale, the borrower will be released from liability of the debt.
* It will allow the borrower to receive pre-approved short sale terms prior to the property being listed.
* Uses standardized processes, documents, and time frames.
* Provides financial incentives to borrowers, servicers, and investors.

These guidelines are set to be in place immediately. Servicers who wish to participate must be on board with Fannie Mae prior to December 31, 2009 with the effective date being April 5, 2010.  This is a major step toward streamlining the short sale process.  It also provides leverage on the part of the borrower to successfully complete a loan modification if this is in their best interest.