All About HAFA

Home Affordable Foreclosure Alternatives (HAFA)

(Short Sale and Deed-in-Lieu (DIL) of Foreclosure)

Act II in the government’s efforts to stem the increasing and seemingly endless tide of homeowners “under water” arrived 5 April 2010.  Act I occurred previously when the Treasury Department announced the guidelines for the Home Affordable Modification Program (HAMP).  Specific eligibility, underwriting and servicing requirements were announced.  The goal of HAMP was to provide eligible borrowers with affordable monthly payments for their first lien mortgages.  HAMP’s failure was frequently reported in the media; not nearly enough loans were modified.  In addition, servicers had no alternative plan for borrowers who:  1) did not meet the eligibility requirements; 2) did not successfully complete the trial modification period; 3) missed at least 2 consecutive payments during the modification; or 4) did not really want a loan modification, but wanted a short sale or to just return the deed to the lender in lieu of foreclosure.

HAFA provides alternatives.  ‘HAFA is part of HAMP, and provides financial incentives to servicers and borrowers who utilize a short sale or deed-in-lieu to avoid a foreclosure on HAMP-eligible loans.  HAFA expires 31 December 2012.

Highlights of some of HAFA’s Benefits for the Borrower

• As long as the borrower performs in accordance with the terms of the Short Sale Agreement (SSA), the servicer may institute, but not complete, foreclosure proceedings.
• The borrower has at least 120 calendar days (approximately 4 months) from the effective date of the SSA to close a sale; extensions are possible.
• There are definite time frames for submission of and response to offers—no more months of waiting for an answer; within in 10 business days of the loan servicer’s receipt of the required documents, short sale approval status will be issued.
• The sales price is determined prior to listing.
• Upon successful closing of a short sale, the borrower will be entitled to a $3000 “relocation incentive” (deducted from the gross sale proceeds).
• The servicer will allow a maximum of $6000 of the gross sale proceeds to be paid to all (not each) subordinate lien holders in exchange for release and full satisfaction of their liens.
• No more “Hardship Letters”;  the hardship is explained by merely checking a box on the “Hardship Affidavit”
• Borrowers who currently have a short sale offer may be able to participate in HAFA if they have a HAFA-eligible loan.  The process is a little different and a little longer from that followed by borrowers who begin the entire process with HAFA, but the same benefits apply

It doesn’t have to be HAFA—traditional short sales will still be possible.  When the loan is not HAMP eligible, the traditional short sale appears to be the only alternative.  But underwater homeowners should “surface” a lot faster and probably in a lot better financial condition using HAFA.

Glossary

• Deed-in-Lieu:  the voluntary transfer of ownership to the servicer in full satisfaction of the total amount due on the first mortgage.
• Loan Servicer:  a public or private entity that collects, monitors and reports loan payments; handles the property tax and insurance escrow, late payments, forecloses defaulted loans, and remits payments.  (Wikipedia); the company that collects house payments, disburses funds, and does record keeping.
• 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 first mortgage.”

Related Links/Reference Documents

• https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html to access the HAFA “Supplemental Directive” and forms.
• http://makinghomeaffordable.gov/contact_servicer.html gives a list of servicers participating in HAMP.  A borrower’s qualification for HAFA is determined in HAMP.  Simply decline the modification (if offered), and request the HAFA alternative.