Supplemental Directive 09-09
Introduction of Home Affordable Foreclosure Alternatives – Short
In Supplemental Directive 09-01, the Treasury Department (Treasury) announced the eligibility,
underwriting and servicing requirements for the Home Affordable Modification Program
(HAMP). Under HAMP, the servicers apply a uniform loan modification process to provide
eligible borrowers with sustainable monthly payments for their first lien mortgage loans. While
HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is
expected that servicers will encounter situations where they are unable to approve a HAMP
modification request, a HAMP modification is offered and not accepted by the borrower, or the
borrower falls out of a HAMP modification. In these instances, the borrower may benefit from
an alternative that helps the borrower transition to more affordable housing and avoid the stigma
of a foreclosure.
This Supplemental Directive provides guidance to servicers for adoption and implementation of
the Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of HAMP and
provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu
to avoid a foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives
reduce the need for potentially lengthy and expensive foreclosure proceedings. The options help
preserve the condition and value of the property by minimizing the time a property is vacant and
subject to vandalism and deterioration. In addition, these options generally provide a
substantially better outcome than a foreclosure sale for borrowers, investors and communities.
This Supplemental Directive provides guidance to servicers for adoption and implementation of
HAFA for first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie
Mac (Non-GSE Mortgages). In order for a servicer to participate in HAFA for Non-GSE
Mortgages, the servicer must execute a servicer participation agreement and related documents
(SPA) with Fannie Mae in its capacity as financial agent for the
Treasury) to participate in HAMP on or before
Supplemental Directive 09-01 requires participating servicers to consider borrowers for other
foreclosure prevention options, including short sale and deed-in-lieu programs. As a result,
servicers already participating in HAMP must follow the guidance set forth in this Supplemental
Directive, which provides servicers with the option to determine the extent to which short sales
or deeds-in-lieu will be offered under this program. Servicers of mortgage loans that are owned
or guaranteed by Fannie Mae or Freddie Mac should refer to the HAFA announcement issued by
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the applicable GSE. A loan must be HAMP eligible and meet the other requirements stated
herein to be eligible for incentive compensation under HAFA.
The effective date of this Supplemental Directive is
implement HAFA prior to
all required information as described in the Reporting Requirements section of this Supplemental
Directive. Borrowers may be accepted into HAFA if a Short Sale Agreement or DIL Agreement,
as described in this Supplemental Directive, is fully-executed by the borrower and received by
the servicer on or before
To help servicers implement HAFA, this Supplemental Directive covers the following topics:
General Terms and Conditions
Standard Form Documents
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the
understanding that the net proceeds from the sale may be less than the total amount due on the
mortgage. The short sale must be an arm’s length transaction with the net sale proceeds (after
deductions for reasonable and customary selling costs) being applied to a discounted (“short”)
mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full
satisfaction of the total amount due on the first mortgage.
In a deed-in-lieu of foreclosure (DIL), the borrower voluntarily transfers ownership of the
mortgaged property to the servicer in full satisfaction of the total amount due on the first
mortgage. The servicer’s willingness to approve and accept a DIL is contingent upon the
borrower’s ability to provide marketable title, free and clear of mortgages, liens and
encumbrances. Generally, servicers require the borrower to make a good faith effort to sell the
property through a short sale before agreeing to accept the DIL. However, under circumstances
acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to
sell the property. With either the HAFA short sale or DIL, the servicer may not require a cash
contribution or promissory note from the borrower and must forfeit the ability to pursue a
deficiency judgment against the borrower.
Short sales and DILs are complex transactions involving coordination and cooperation among a
number of parties including, but not limited to, servicers, appraisers, borrowers (sellers), buyers,
real estate brokers and agents, title agencies, and often mortgage insurance companies and
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subordinate and other lien holders. The HAFA program simplifies and streamlines the use of
short sales and DIL options by incorporating the following unique features:
Complements HAMP by providing viable alternatives for borrowers who are HAMPeligible.
Utilizes borrower financial and hardship information collected in conjunction with
HAMP, eliminating the need for additional eligibility analysis.
Allows the borrower to receive pre-approved short sale terms prior to the property listing.
Prohibits the servicer from requiring, as a condition of approving the short sale, a
reduction in the real estate commission agreed upon in the listing agreement.
Requires that borrowers be fully released from future liability for the debt.
Uses standard processes, documents and timeframes.
Provides financial incentives to borrowers, servicers and investors.
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.
Servicers must evaluate a borrower for a HAMP modification prior to any consideration being
given to HAFA options in accordance with the provisions of Supplemental Directive 09-01 and
any supplemental HAMP guidance. Borrowers that meet the eligibility criteria for HAMP but
who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or
default on a HAMP modification should first be considered for other loan modification or
retention programs offered by the servicer prior to being evaluated for HAFA.
In accordance with the provisions of Supplemental Directive 09-01, a loan meets the basic
eligibility criteria if all of the following conditions are met:
The property is the borrower’s principal residence;
The mortgage loan is a first lien mortgage originated on or before
The mortgage is delinquent or default is reasonably foreseeable;
The current unpaid principal balance is equal to or less than $729,7501; and
The borrower’s total monthly mortgage payment (as defined in Supplemental Directive
09-01) exceeds 31 percent of the borrower’s gross income.
Pursuant to the servicer’s policy, every potentially eligible borrower must be considered for
HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending
1 This amount refers to 1 unit properties. Higher amounts apply to 2 to 4 unit dwellings. See Supplemental Directive
Supplemental Directive 09-09 Page 4
foreclosure sale to be conducted. Servicers must consider possible HAMP eligible borrowers for
HAFA within 30 calendar days of the date the borrower:
Does not qualify for a Trial Period Plan;
Does not successfully complete a Trial Period Plan;
Is delinquent on a HAMP modification by missing at least two consecutive payments; or
Requests a short sale or DIL.
The date and outcome of the HAFA consideration must be documented in the servicer’s file.
If the servicer determines that a borrower is eligible for a HAFA offer based on its written policy
and this Supplemental Directive, the servicer must follow the steps below to determine if a short
sale or DIL offer will be extended to the borrower.
Borrower Solicitation and Response. If the servicer has not already discussed a short sale or
DIL with the borrower, the servicer must proactively notify the borrower in writing of the
availability of these options and allow the borrower 14 calendar days from the date of the
notification to contact the servicer by verbal or written communication and request consideration
under HAFA. If the borrower fails to contact the servicer within the timeframe or at any time
indicates that he or she is not interested in these options, the servicer has no further obligation to
extend a HAFA offer.
Expected Recovery through Foreclosure and Disposition. Though not a HAFA requirement,
it is expected that servicers will, in accordance with investor guidelines, perform a financial
analysis to determine if a short sale or DIL is in the best interest of the investor, guarantor and/or
mortgage insurer. The results of any analysis must be retained in the servicing file. The HAMP
base NPV model does not project investor cash flows from either a short sale or DIL and should
be used only to determine borrower eligibility for a HAMP modification.
Use of Borrower Financial Information. Verified borrower financial information obtained in
conjunction with HAMP may be relied upon to determine a borrower’s eligibility for HAFA. If
financial and hardship information is documented and verified, no additional financial or
hardship assessment is required by HAFA. However, in accordance with investor guidelines, the
servicer may request updated financial information to evaluate the borrower. If a borrower was
evaluated for HAMP based on verbal financial data, the servicer may send the borrower a Short
Sale Agreement (SSA) and must require the borrower to deliver the financial information
required under HAMP when the borrower returns the executed SSA. The servicer must verify a
borrower’s financial information through documentation and obtain a signed Hardship Affidavit
prior to approving a short sale or accepting a DIL under HAFA.
Property Valuation. The servicer must, independent of the borrower and any other parties to
the transaction, assess the current value of the property in accordance with the investor’s
guidelines. The servicer may not require the borrower to pay in advance for the valuation, but
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may add the cost to the outstanding debt in accordance with the borrower’s mortgage documents
and applicable law in the event the short sale or DIL is not completed.
Review of Title. The servicer must review readily available information provided by the
borrower, the borrower’s credit report, the loan file or other sources to identify subordinate liens
and other claims on title to determine if the borrower will be able to deliver clear, marketable
title to a prospective purchaser or the investor. Although not required by HAFA, the servicer
may order a title search or preliminary title report. The servicer may not charge the borrower in
advance for any cost incurred in the title review, but may add the cost to the outstanding debt in
accordance with the borrower’s mortgage documents and applicable law in the event the short
sale or DIL is not completed.
Borrower Notice. When a HAFA short sale or DIL is not available, the servicer must
communicate this decision in writing to any borrower that requested consideration. The notice
must explain why a short sale or DIL under HAFA cannot be offered, provide a toll free
telephone number that the customer may call to discuss the decision and otherwise comply with
the notice requirements of Supplemental Directive 09-08, Borrower Notices.
The HAFA short sale process employs standard form documents and defined performance
timeframes to facilitate clear communication between the parties to the listing and sale
transaction. Servicers must adhere to the following guidelines in connection with the issuance of
Minimum Acceptable Net Proceeds. Prior to approving a borrower to participate in a HAFA
short sale, the servicer must determine the minimum acceptable net proceeds (minimum net) that
the investor will accept from the transaction. Each servicer must develop a written policy,
consistent with investor guidelines, that describes the basis on which the minimum net will be
determined. This policy may incorporate such factors as local market conditions, customary
transactional costs of such sales, and the amounts that may be required to release any subordinate
liens on the property. A servicer’s policy for determining the minimum net must be consistently
applied for all loans serviced for that investor. The minimum net may be expressed as a fixed
dollar amount, as a percentage of the current market value of the property, or as a percentage of
the list price as approved by the servicer. Once determined, the servicer must document the
minimum net in the servicing file for each property subject to HAFA. After signing an SSA, the
servicer may not increase the minimum net requirement until the initial SSA termination date is
reached (not less than 120 calendar days). Subsequent changes to the minimum net when the
SSA is extended must be documented.
Allowable Transaction Costs. In determining the minimum net, the servicer must consider
reasonable and customary real estate transaction costs for the community in which the property is
located and determine which of these costs the servicer or investor is willing to pay from sale
proceeds. The servicer must describe the costs that may be deducted from the gross sale
proceeds in the SSA.
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Short Sale Agreement. The HAFA SSA, outlines the roles and
responsibilities of the servicer and borrower in the short sale listing process and provides key
marketing terms, such as a list price or acceptable sale proceeds and the duration of the SSA. The
HAFA Request for Approval of a Short Sale (RASS), which must accompany the SSA, is
attached as Exhibit A1. The RASS is submitted to the servicer when an offer is received to
provide the terms and conditions of the short sale and together with the sales contract, provides
settlement instructions to the settlement agent. Either proactively, or at the request of an eligible
borrower, the servicer will prepare and send an SSA to the borrower after determining that the
proposed sale is in the best interest of the investor. The servicer will also provide the borrower a
RASS, pre-populated with contact information for the servicer, the property address and the loan
In the event that a borrower has an executed sales contract and requests the servicer to approve a
short sale under HAFA before an SSA has been executed, the servicer must evaluate the
borrower for HAFA as described in this Supplemental Directive and must utilize the Alternative
Request for Approval of a Short Sale (Alternative RASS).
While servicers may amend the terms of the SSA in accordance with investor requirements,
applicable laws or local real estate practice, at a minimum the SSA must include the following:
A fixed termination date not less than 120 calendar days from the effective date of the
SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the
SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of
the servicer up to a total term of 12 months, in accordance with the requirements of the
A requirement that the property be listed with a licensed real estate professional who is
regularly doing business in the community where the property is located.
Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a
net amount after subtracting allowable costs that the servicer will accept from the
The amount of closing costs or other expenses the servicer will permit to be deducted
from the gross sale proceeds expressed as a dollar amount, a percentage of the list price
or a list by category of reasonable closing costs and other expenses that the servicer will
permit to be deducted from the gross sale proceeds.
The amount of the real estate commission that may be paid, not to exceed 6% of the
contract sales price, and notification if any portion of the commission must be paid to a
contractor of the servicer that has been retained to assist the listing broker with the
A statement by the borrower authorizing the servicer to communicate the borrower’s
personal financial information to other parties (including Treasury and its agents) as
necessary to complete the transaction.
Cancellation and contingency clauses that must be included in listing and sale agreements
notifying prospective purchasers that the sale is subject to approval by the servicer and/or
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Notice that the sale must represent an arm’s length transaction and that the purchaser may
not sell the property within 90 calendar days of closing, including certification language
regarding the arm’s length transaction that must be included in the sales contract.
An agreement that upon successful closing of a short sale acceptable to the servicer, the
borrower will be released from all liability for repayment of the first mortgage debt.
An agreement that upon successful closing of a short sale acceptable to the servicer the
borrower will be entitled to a relocation incentive of $1,500, which will be deducted from
the gross sale proceeds at closing.
Notice that the servicer will allow a portion of gross sale proceeds to be paid to
subordinate lien holders in exchange for release and full satisfaction of their liens.
Notice that a short sale may have income tax consequences and/or may have a derogatory
impact on the borrower’s credit score and a recommendation that the borrower seek
professional advice regarding these matters.
The amount of the monthly mortgage payment, if any, that the borrower will be required
to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s
gross monthly income.
An agreement that so long as the borrower performs in accordance with the terms of the
SSA, the servicer will not complete a foreclosure sale.
Terms under which the SSA can be terminated.
Borrower Obligations. The borrower must sign and return the SSA within 14 calendar days
from its Effective Date along with a copy of the real estate broker listing agreement and
information regarding any subordinate liens. In returning and signing the SSA the borrower
Provide all information and sign documents required to verify program eligibility.
Cooperate with the listing broker to actively market the property and respond to servicer
Maintain the interior and exterior of the property in a manner that facilitates
Work to clear any liens or other impediments to title that would prevent conveyance.
Make the monthly payment stipulated in the SSA, if applicable.
Monitoring Marketing Activity / Cause for Termination. During the term of the SSA, the
servicer may terminate the SSA before its expiration due to any of the following events:
The borrower’s financial situation improves significantly, the borrower qualifies for a
modification, or the borrower brings the account current or pays the mortgage in full.
The borrower or the listing broker fails to act in good faith in listing, marketing and/or
closing the sale, or otherwise fails to abide by the terms of the SSA.
A significant change occurs to the property condition and/or value.
There is evidence of fraud or misrepresentation.
The borrower files for bankruptcy and the Bankruptcy Court declines to approve the
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Litigation is initiated or threatened that could affect title to the property or interfere with
a valid conveyance.
The borrower fails to make the monthly payment stipulated in the SSA, if applicable.
Request for Approval of Short Sale. Within three business days following receipt of an
executed purchase offer, the borrower or the listing broker must deliver to the servicer a
completed RASS describing the terms of the sale transaction. With the RASS, the borrower
must submit to the servicer:
A copy of the executed sales contract and all addenda.
Buyer’s documentation of funds or buyer’s pre-approval or commitment letter on
letterhead from a lender.
All information regarding the status of subordinate liens and/or negotiations with
subordinate lien holders.
Approval or Disapproval of
required attachments, the servicer must indicate its approval or disapproval of the proposed sale
by signing the appropriate section of the RASS and mailing it to the borrower.
The servicer must approve a RASS if the net sale proceeds available for payment to the servicer
equal or exceed the minimum net determined by the servicer prior to the execution or extension
of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the
servicer may not require, as a condition of approving a short sale, a reduction in the real estate
commission below the commission stated in the SSA.
The servicer may require that the sale closing take place within a reasonable period following
acceptance of the RASS, but in no event may the servicer require that a transaction close in less
than 45 calendar days from the date of the sales contract without the consent of the borrower.
Alternative Request for Approval of Short Sale. If the borrower has an executed sales
contract and requests the servicer to approve a short sale under HAFA before an SSA has been
executed, then the borrower must submit the request to the servicer in the form of the Alternative
Request for Approval of Short Sale (Alternative RASS), attached as Exhibit B. Upon receipt of
the Alternative RASS, the servicer must determine the basic eligibility of the borrower as
described in the HAFA Consideration section of this Supplemental Directive. If the borrower
appears to be eligible and was not previously considered for a Trial Period Plan, the servicer
must notify the borrower verbally or in writing of the availability of a HAMP modification and
allow the borrower 14 calendar days from the date of the notification to contact the servicer by
verbal or written communication and request consideration for a HAMP modification. In
addition, the servicer must verify the borrower’s financial information through documentation
and obtain a signed Hardship Affidavit from the borrower prior to approving the short sale.
If the borrower does not wish to be considered for a modification, the servicer may consider the
Alternative RASS in accordance with this Supplemental Directive without first having to enter
into an SSA with the borrower. If the servicer approves the short sale, then the loan will qualify
for the HAFA program. A borrower may not participate in a HAMP Trial Period Plan and agree
Supplemental Directive 09-09 Page 9
to a HAFA SSA simultaneously. In addition, the servicer must collect and report the information
required under Supplemental Directive 09-06 prior to reporting any HAFA information required
by this Supplemental Directive.
In accordance with investor requirements, servicers have the discretion to accept a HAFA DIL,
which requires a full release of the debt and waiver of all claims against the borrower. The
borrower must agree to vacate the property by a date certain, leave the property in broom clean
condition and deliver clear, marketable title.
Typically, servicers require that the borrower make a good faith effort to list and market the
property before the servicer will agree to accept a DIL. Under circumstances acceptable to the
investor, servicers may agree to accept a DIL without requiring a marketing period. In either
circumstance, the transaction will be eligible for incentives as described in the Incentive
Compensation section of this Supplemental Directive if the borrower meets the HAFA eligibility
SSA. The SSA contains optional DIL language that may be included or deleted by the servicer
prior to execution of the SSA. If the DIL language is included, the investor is obligated to accept
a DIL in accordance with the terms of the SSA if the term of the SSA expires without resulting
in a sale of the property. If the servicer offers the DIL option separately from the SSA or without
a marketing period, the servicer must provide the Deed-in-Lieu Agreement form (“DIL
Agreement”), attached as Exhibit C.
DIL Terms. The following terms apply to a HAFA DIL:
Marketable Title. The borrower must be able to convey clear, marketable title to the
servicer or investor. The requirements for extinguishment of subordinate liens as
described in the Release of Subordinate Liens section of this Supplemental Directive
apply to DIL transactions.
Written Agreement. The conditions for acceptance of a DIL must be in writing and
signed by both the servicer and borrower. They may be set forth in the SSA if approved
with the short sale, or in the DIL Agreement.
Vacancy Date. The SSA or DIL Agreement must specify the date by which the borrower
must vacate the property, which in no event shall be less than 30 calendar days from the
date of the termination date of the SSA or the date of a separate DIL Agreement, unless
the borrower voluntarily agrees to an earlier date.
Relocation Assistance. Borrowers who participate in a HAFA DIL transaction are
eligible for $1,500 in relocation assistance as described in the Incentive Compensation
section of this Supplemental Directive.
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General Terms and Conditions
Suspension of Foreclosure Sales. At the servicer’s discretion, the servicer may initiate
foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but
may not complete a foreclosure sale:
While determining the borrower’s eligibility and qualification for HAMP or HAFA.
While awaiting the timely return of a fully executed SSA.
During the term of a fully executed SSA.
Pending transfer of property ownership based on an approved sales contract per the
RASS or Alternative RASS.
Pending transfer of property ownership via a DIL by the date specified in the SSA or DIL
Payment Forbearance. The servicer will identify in the SSA, Alternative RASS or DIL
Agreement the amount of the monthly mortgage payment, if any, that the borrower is required to
make during the term of the applicable agreement and pending transfer of property ownership, as
applicable. In no event may the amount of the borrower’s monthly payment exceed the
equivalent of 31% of the borrower’s gross monthly income. Servicers must develop a written
policy in accordance with investor requirements that identifies the circumstances under which
they will require monthly payments and how that payment will be determined. Any requirement
for the borrower to make monthly payments must be in accordance with applicable laws, rules
Release of Subordinate Liens. It is the responsibility of the borrower to deliver clear
marketable title to the purchaser or investor and to work with the listing broker, settlement agent
and/or lien holders to clear title impediments. The servicer may, but is not required to, negotiate
with subordinate lien holders on behalf of the borrower. The servicer, on behalf of the investor,
will authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale
proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and
full release of borrower liability. Each lien holder, in order of priority, may be paid three percent
(3%) of the unpaid principal balance of their loan, until the $3,000 aggregate cap is reached.
Payments will be made at closing from the gross sale proceeds and must be reflected on the
HUD-1 Settlement Statement. Investors are eligible for incentive reimbursement for up to onethird
of the cost to extinguish subordinate liens as described in the Incentive Compensation
section of this Supplemental Directive.
Release of First Mortgage Lien. The servicer must release its first mortgage lien within ten
business days (or earlier if required by state or local laws) after receipt of sale proceeds from a
short sale or delivery of the deed and property in a DIL transaction. Additionally, the investor
must waive all rights to seek a deficiency judgment and may not require the borrower to sign a
promissory note for the deficiency.
Borrower Fees. Servicers may not charge the borrower any administrative processing fees in
connection with HAFA. The servicer must pay all out-of-pocket expenses, including but not
limited to notary fees, recordation fees, release fees, title costs, property valuation fees, credit
Supplemental Directive 09-09 Page 11
report fees, or other allowable and documented expenses, but the servicer may add these costs to
the outstanding debt in accordance with borrower’s mortgage documents and applicable laws in
the event the short sale or DIL is not completed. Servicers may require borrowers to waive
reimbursement of any remaining escrow, buy down funds or prepaid items, and assign any
insurance proceeds to the investor, if applicable. Those funds will not be applied to reduce the
total net proceeds from the sale.
Mortgage Insurer Approval. For loans that have mortgage insurance coverage, the
servicer/investor must obtain mortgage insurer approval for HAFA foreclosure alternatives. A
mortgage loan does not qualify for HAFA unless the mortgage insurer waives any right to collect
additional sums (cash contribution or a promissory note) from the borrower.
Treasury will provide reimbursements and incentives as set forth below. However, no incentives
will be paid to the borrower, servicer or investor if the net proceeds from a sale exceed the total
amount due on the first mortgage when title is transferred. The amount of any contribution paid
by a mortgage insurer or other provider of credit enhancement shall not be considered in
determining whether the mortgage was paid in full and whether servicers are eligible for such
Borrowers, servicers and investors will be eligible for HAFA incentives upon successful
completion of the short sale or DIL if an SSA, Alternative RASS or DIL Agreement, as
applicable, was executed on or before
Treasury upon reporting the completed HAFA transaction as described in the Reporting
Requirements section of this Supplemental Directive. For a short sale or DIL, incentives will be
paid as follows:
Borrower Relocation Assistance. Following the successful closing of a short sale or DIL, the
borrower shall be entitled to an incentive payment of $1,500 to assist with relocation expenses.
In a short sale transaction, the servicer must instruct the settlement agent to pay the borrower
from sale proceeds at the same time that all other payments, including the payoff to the servicer,
are disbursed by the settlement agent. The amount paid to the borrower must appear on the
HUD-1 Settlement Statement.
If the servicer conducts a formal closing for a DIL transaction and the borrower has vacated the
property, the borrower relocation incentive of $1,500 must be paid at closing and reflected on the
HUD-1 Settlement Statement. If at the time of closing the borrower has not vacated the
property, the servicer must mail a check to the borrower within five business days of the
borrower’s vacancy and delivery of keys to the servicer or the servicer’s agent. Similarly, if the
DIL transaction is not conducted as a formal closing, the servicer must mail a check to the
borrower within five business days from the later of the borrower’s execution of the deed or the
borrower’s vacancy and delivery of keys to the servicer or servicer’s agent.
Supplemental Directive 09-09 Page 12
Servicers will be reimbursed for the full amount of this incentive payment after the HAFA
transaction is reported as described in Reporting Requirements section of this Supplemental
Servicer Incentive. The servicer will be paid $1,000 to cover administrative and processing
costs for a short sale or DIL completed in accordance with the requirements of HAFA and the
applicable documents. Investors may elect to pay additional incentive compensation to servicers
which will not affect the HAFA servicer incentive.
Investor Reimbursement for Subordinate Lien Releases. The investor will be paid a
maximum of $1,000 for allowing a total of up to $3,000 in short-sale proceeds to be distributed
to subordinate lien holders, or for allowing payment of up to $3,000 to subordinate lien holders.
This reimbursement will be earned on a one-for-three matching basis. For each three dollars an
investor pays to secure release of a subordinate lien, the investor will be entitled to one dollar of
reimbursement. To receive an incentive, subordinate lien holders must release their liens and
waive all future claims against the borrower. The servicer is not responsible for any future
actions or claims against the borrower by such subordinate lien holders or creditors.
Standard Form Documents
Servicers are required to use the HAFA documents attached to this Supplemental Directive
substantially the form provided, except that the servicer may amend the terms of the SSA or DIL
Agreement in accordance with investor requirements, applicable laws or local real estate practice
and may customize the forms with servicer specific logos.
Document Retention. Servicers must retain all documents and information received during the
process of determining borrower eligibility and qualification for HAFA.
For a period of seven years from the date of the document collection, servicers must retain
detailed records of borrower solicitations or borrower-initiated inquiries regarding HAFA, the
outcome of the evaluation for foreclosure alternatives under HAFA and specific justification
with supporting details if foreclosure alternatives were denied. Records must also be retained to
document the reasons for termination of the SSA or expiration of HAFA transactions without a
completed short sale or acceptance of a DIL.
Signatures and Electronic Documents. All HAFA documentation must be signed by an
authorized representative of the servicer and reflect the actual date of signature by the servicer’s
Unless a borrower or co-borrower is deceased or a borrower and a co-borrower are divorced, all
parties who signed the original loan documents or their duly authorized representatives must
execute the HAFA documents. If a borrower and a co-borrower are divorced and the property
has been transferred to one spouse in the divorce decree, the spouse who no longer has an
interest in the property is not required to execute the HAFA documents. Servicers may evaluate
requests on a case-by-case basis when the borrower is unable to sign due to circumstances such
as mental incapacity or military deployment.
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Any party to a document utilized in HAFA may, subject to applicable law and any investor
requirements or restrictions, prepare, sign and send the document through electronic means
provided: (a) appropriate technology is used to store an authentic record of the executed
document and the technology otherwise ensures the security, confidentiality and privacy of the
transaction, (b) the document is enforceable under applicable law, (c) the servicer obtains the
borrower’s consent to use electronic means to enter into the document, (d) the servicer ensures
that the borrower is able to retain a copy of the document and provides a copy to the borrower
that the borrower may download, store and print, and (e) the borrower, at any time, may elect to
enter into the document through paper means or to receive a paper copy of the document.
As a condition to receiving the incentive payments offered through HAFA, servicers are required
to provide periodic HAFA loan level data to Fannie Mae, in its capacity as program
administrator. The data submitted must be accurate, complete, timely, and agree with the
servicer’s records. Data will be reported by a servicer at key milestones in the transaction:
Notification – when the SSA or DIL Agreement is signed and executed, or updated
following an extension of the marketing terms;
Short Sale/DIL Loan Set Up – at the transfer of property ownership (closing of a short
sale or acceptance of DIL); and/or
Termination – when the SSA or DIL Agreement expires or when the SSA or DIL
Agreement is terminated by the servicer.
Each milestone is a separate data transmission and must be reported no later than the fourth
business day of the month following the event. The required data elements are attached to this
Supplemental Directive as Exhibit D. In addition, HAFA reporting requirements will be posted
on the servicer web portal at www.hmpadmin.com. Note also that the reporting information
required under Schedule I and Schedule IV of Supplemental Directive 09-06 must be provided
by the servicer for all HAFA
transactions, including those that occur prior to
The HAFA reporting and payment processes are currently under development by Fannie Mae, in
its capacity as program administrator. Subsequent guidance will be provided describing when
the HAFA reporting and processes will be available. Servicers will not be required to report
HAFA data until the reporting process is in place, but in this interim period servicers must
collect and store information on all HAFA transactions so that the necessary data can be reported
when the processes become available. In addition, HAFA incentives will not be paid until the
payment process is available; borrowers, servicers and investors will be reimbursed for all
incentives relating to HAFA transactions closed prior to the reporting and payment processes
Credit Bureau Reporting. The servicer should continue to report a “full file” status to the
major credit repositories for each loan under the HAFA program in accordance with the Fair
Credit Reporting Act and the Consumer Data Industry Association’s (“CDIA’s”) Metro 2 Format
credit bureau requirements. “Full file” reporting means that the servicer must describe the exact
Supplemental Directive 09-09 Page 14
status of each mortgage it is servicing as of the last business day of each month. The Payment
Rating code should be the code that properly identifies whether the account is current or past due
within the activity period being reported – prior to completion of the HAFA transaction. Because
CDIA’s Metro 2 format does not provide an Account Status Code allowable value for a short
sale, a short sale should identified with the reporting of Special Comment Code “AU”. The
information below is consistent with “CDIA Mortgage and Home Equity Reporting Guidelines
in Response to Current Financial Conditions” (May 2009).
Reporting should be as follows:
Account Status Code = 13 (paid or closed/zero balance)
Payment Rating = 0, 1, 2, 3, 4, 5, or 6
Special Comment Code = AU (account paid in full for less than the full balance)
Current Balance = $0
Amount Past Due = $0
Date Closed = MMDDYYYY
Date of Last Payment = MMDDYYYY
Account Status Code = 89 (deed-in-lieu of foreclosure on a defaulted loan)
Payment Rating = 0, 1, 2, 3, 4, 5, or 6
Current Balance = $0
Amount Past Due = $0
Date Closed = MMDDYYYY
Date of Last Payment = MMDDYYYY
Servicers must comply with the HAFA short sale and DIL requirements specified in this
Supplemental Directive and any subsequent policy guidance. Servicers must have adequate
staffing and resources for responding to borrower requests for participation, for receiving and
processing HAFA documents in accordance with program guidelines and for ensuring that
inquiries and complaints about HAFA receive fair consideration, along with timely and
appropriate response and resolution.
Treasury has selected Freddie Mac to serve as its compliance agent for HAFA. In its role as
compliance agent, Freddie Mac will utilize Freddie Mac employees and contractors to conduct
independent compliance assessments. The scope of the assessments will include, among other
things, an evaluation of documented evidence to confirm adherence (e.g., accuracy and
timeliness) to HAFA requirements with respect to the following:
Assessment of the process for evaluating and approving borrowers for a HAFA short sale
Supplemental Directive 09-09 Page 15
Adherence to the standard policies and guidelines for completing HAFA short sales and
DIL and consistent application of same.
Determining fair market value, recommended list price, approved sale proceeds and
approved minimum net proceeds, as applicable.
Guidelines for allowable payoffs to junior lien holders.
Use of standard documents and document retention.
Completion of borrower, servicer and investor incentive payments.
The review will also confirm the existence and evaluate the effectiveness of the servicer’s quality
assurance program; such evaluation will include, without limitation, the timing and size of the
sample selection, the scope of the quality assurance reviews, and the reporting and remediation
There will be two types of compliance assessments: on-site and remote. Both on-site and remote
reviews will include the following activities (among others): notification, scheduling, selfassessments,
documentation submission, interviews, file reviews, and reporting.
For on-site reviews, Freddie Mac will strive to provide the servicer with (i) a 30-day advance
notification of a pending review and (ii) subsequent confirmation of the dates of the review;
however, Freddie Mac reserves the right to arrive at the servicer’s site unannounced. Freddie
Mac will request the servicer to make available documentation, including, without limitation,
policies and procedures, management reports, loan files and a risk control self assessment ready
for review. Moreover, Freddie Mac may request additional loan files during the review.
Interviews will usually be conducted in-person.
During the review window, Freddie Mac will review loan files and other requested
documentation to evaluate compliance with HAFA terms. Upon the completion of the review,
Freddie Mac will conduct an exit interview with the servicer to discuss preliminary assessment
For remote reviews, Freddie Mac will request the servicer to send documentation, including,
without limitation, policies and procedures, management reports, loan files and a risk control self
assessment within 30 calendar days of the request. In addition, time will be scheduled for phone
interviews, including a results summary call after the compliance review is completed to discuss
The targeted time frame for publishing the servicer assessment report is 30 calendar days after
the completion of the review. Treasury will receive a copy of the report five business days prior
to the release of the report to the servicer. There will be an issue/resolution appeal process for
servicer assessments. Servicers will be able to submit concerns or disputes to an independent
quality assurance team within Freddie Mac.
A draft rating and implication methodology for the compliance assessments will be published in
a subsequent Supplemental Directive and servicer feedback will be solicited prior to the
finalization of the methodology.
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