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Home Affordable Foreclosure Alternative Program (HAFA)

The new Home Affordable Foreclosure Alternative Program (HAFA) guidelines took effect April 5, 2010. The program will terminate on December 31, 2012. HAFA is designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure by improving the process. The HAFA guidelines are voluntary, but major banks and servicers including Bank of America, Chase, Wells Fargo and Citimortgage, as well as many smaller lenders, have agreed to participate. All servicers participating must implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include such factors as severity of the loss involved, local market conditions, the timing of pending foreclosure actions, and borrower motivation and cooperation.

Loans that are eligible:

– Loans NOT owned or guaranteed by Fannie Mae or Freddie Mac (Those agencies are expected to release their own, similar guidelines).
– The property is the borrower’s principal residence.
– The mortgage loan is a first lien mortgage originated on or before January 1, 2009.
– The mortgage is delinquent or default is reasonably foreseeable.
– The current unpaid principal balance is equal to or less than $729,750.
– The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.

Main Points:

– Allow borrowers to receive pre-approved short sale terms before listing the property (including the minimum acceptable net proceeds). Appraisals, review of financials, investor approvals, mortgage insurer approvals and second lien approvals can be done while the property is being marketed for sale.
– Servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions.
– Prohibit the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
– Require borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
– The amount of debt forgiven might be treated as income for tax purposes. Under the Mortgage Forgiveness Debt Relief Act of 2007 which expires at the end of 2012, however, the tax may not apply. Forgiven debt will not be taxed if the amount of the forgiven debt does not exceed the debt that was used to acquire, construct or rehabilitate a principal residence. (Check with a tax advisor.)
– Use standard processes, documents and timeframes/deadlines. Within 3 business days after receiving an offer, the lender must be sent a completed Request to Approve a Short Sale form, with the fully executed Contract, and buyer loan prequalification letter. Within 10 business days of the lender’s receipt of these documents, the lender will approve the sale if it is within the terms and conditions of the Short Sale Agreement and any other liens are released.
– Provide financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis; up to 3% of the unpaid principal balance of each subordinate loan).
– The deal must be “arms length”. Borrowers cannot list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.
– Buyers may not reconvey the property within 90 days after closing.

If the property has not sold by the end of the term of the Short Sale Program, the borrower can convey title to the property to the Lender by Deed in Lieu of Foreclosure. This will prevent the borrower from going through a foreclosure sale and will release the borrower from all responsibility to repay the mortgage debt. Additionally, the borrower will receive $3,000 to help with moving expenses.
For a great selection of homes in Raleigh, Cary, Wake Forest, and the surrounding area, check out my Triangle website and meet the Marti Hampton Team. We can guide you through the home buying process and sell you previous home as well.

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