HAFA - Home Affordable Foreclosure Alternatives

Effective from April 5, 2010 to December 31, 2012

Many homeowners are struggling with their mortgage payment due to loss of work, medical debt, loss of a loved one, job transfers and multitude of other reason, such as a down turn in the economy or a loan adjustment.  As a result they may feel that they can no longer afford their home, but want to avoid the negative effects of foreclosure. The Home Affordable Foreclosure Alternatives (HAFA) Program offers homeowners (sellers), their mortgage servicers, and/or investors an incentive for completing a short sale or deed-in-lieu of foreclosure.

Under the HAFA program options are available for homeowners who: 

  1. Do not qualify for a trial mortgage modification under the Making Home Affordable Program
  2. Do not successfully complete the trial period for their modification
  3. Miss at least two consecutive payments during their modification period or
  4. Request a short sale or deed-in-lieu of foreclosure.
In order to qualify for HAFA, a home owner must meet the basic eligibility requirements for HAMP. 
1.    The property is the borrowers principal residence.
2.    The mortgage is a first lien originated on or before January 01, 2009.
3.    The mortgage is delinquent or default is reasonably foreseeable.
       4.    The current mortgage balance is; $729,750.00 or less (one unit), $934,200.00 (two units), $1,129,250.00 (3 units), $1,403,400.00 (4 units)
         Note: Investor owned or second homes do not qualify

   5.    The borrowers monthly mortgage payment exceeds 31% of their monthly gross income. *See update below!

   6.    If the borrower has mortgage insurance, the mortgage insurer must waive their rights to collect any deficiency.

If a borrower meets the following criteria, the participating servicer must give the borrower the option to participate in HAFA.

  1.  The borrower did not qualify for the HAMP trial period. 
  2.   The borrower did not successfully complete the HAMP trial period.
  3.   The borrower is delinquent on their HAMP modification.
  4. The borrowers requests a short sale or deed-in-lieu.

The good news for sellers who participate in HAFA:

  1. Requires borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives a payment from the first lien holder to enable the transaction, that debt as well. 
  2. No cash contribution, promissory note or deficieny judgment is allowed
  3. Provides financial incentives: $3,000 for borrower relocation assistance and $1,500.00 for servicers to cover administrative and processing cost, and up to $2000.00 reimbursement for first lien investors for allowing a total of 6% unpaid principal balance up to $6,000.00 cap in short sale proceeds to be distributed to subordinate lien holders.
  4. The short sale will be pre-approved and the listing price will be provided to the listing agent by the loan servicer.
  5. The servicer will provide written approval within 10 days of receipt of an executed purchase contract.
  6. Requires that borrowers provide clear and marketable title, and maintin the property in good condition for the duration of the Short Sale Agreement (minimum of 120 days).
  7. Debt forgiven under HAFA could have tax and credit rating impact for the borrower.  All borrowers (sellers) are advised to get professional financial, tax and legal advice before proceeding.

The good news for buyers:

  1.  The endless waiting for short sale approval will be shortened.
  2.  Servicer will allow up to 45 days for close of escrow.
  3. New buyer may not sell the property within 90 days of purchase.

This program will help take some of the frustrating unknowns out of the short sale process.

*Non-GSE Program Update (Expansion of Guidelines) 
 

Recently adopted into the non-GSE HAFA program on December 28th, 2010. These changes are effective on a mandatory basis starting February 1, 2011.
  • Monthly Gross Income. Servicers are no longer required to verify that the borrowers' mortgage payment is more than 31% of their currently monthly gross income. Now, as long as a borrower as documented financial hardship (via an RMA or signed Hardship Affidavit) they can be eligible for the program;
     
  • Vacant Properties. Properties that have been vacant up to 12 months are now eligible for the non-GSE program (as long as there is documentation that the property was the borrower's primary residence and they have not purchased another 1-4 unit property in the prior 12 months);
     
  • Subordinate Lien Payoffs. Treasury has removed the 6% cap on subordinate lien payoffs by first lien holders. Now there is just the $6,000 cap on subordinate lien payoff;
     
  • Borrower as Renter. The program has been expanded to allow (and pay incentives on) Servicer created deed-for-lease programs... with or without the potential for repurchase of the property by the borrower/seller at a later date.
     
  • Key Servicer Response Timeframe Gaps Filled. There were 2 key "gaps" in mandated servicer response times... which were creating significant back-logs and delays on HAFA transactions. Both of these major gaps are now filled: Servicers must provide borrowers an SSA within 30 days of the borrower's expression of interest in the program AND Servicers must make a decision on ARASS transactions (with an approval, disapproval or counter-offer) within 30 days!
If you'd like to read the full new Treasury directive (it's not very long), click here: Supplemental Directive 10-18