Home Affordable Foreclosure Alternative (HAFA) Program
The new federal Home Affordable Foreclosure Alternative (HAFA) Program went into effect on April 5, 2010. This program has new guidelines intended to speed up and standardize short sale and deed-in-lieu (DIL) transactions.
In a short sale, the borrower sells the home for less than the amount owed on the mortgage and the lender accepts a discounted payoff. They can be far less costly to the lender than foreclosures. But, experts in transactions such as second lien holders (home equity lines are the most common form of second liens) have scuttled many deals by reserving the right to chase after the borrower for the amount of debt not covered by the home sale in states where doing so is allowed. HAFA will attempt to change that.
The program gives the servicers $1,000 to cover their costs. It gives junior mortgage holders up to $3,000 (or 3% of what they owed) to release their liens and waive any future claims against the borrower. HAFA also gives $1,500 to each borrower (per household) to defray their moving costs. More importantly the HAFA program will allow the borrower to receive pre-approved short sale terms prior to the property listing (including the minimum acceptable net proceeds).
This program is designed to help borrowers who do not qualify for the Home Affordable Modification Program or people who receive loan mods, but re-defaulted. To qualify, loans must meet the following conditions:
Not owned or guaranteed by Freddie or Fannie (but they are expected to release similar guidelines in the future)
Borrower’s principal residence
Loan is the first lien on the property
Loan originated on or before January 1, 2009
Loan is in default or is reasonably foreseeable
Current unpaid balance is equal or less than $729,750 (higher limits for 2-4 unit dwellings)
Borrower’s total monthly mortgage payment exceeds 31% of borrower’s gross income
HAFA is set to achieve two important things for the industry: to standardize the short sale process and provide structured time lines. In other words, HAFA dictates that certain things have to be done in a certain amount of time. For example, a borrower has 14 calendar days to contact a servicer after they have been notified that they are eligible for a short sale.
Keep in mind that this program is voluntary; and Freddie and Fannie loans, which make up a large portion of the market, do not qualify. So, it will take a while to see how many lenders will actually anticipate and how many loans will actually qualify. On the other hand, if a loan qualifies under HAFA and the lender is participating, it will be easier to market the property knowing what the lender will demand as a short pay off. The sellers will not have to worry about liability to the lender after the short sale. Moreover, sellers will not be tempted to cancel the short sale and opt for a foreclosure instead.
Thanks to Kitty Lee of Bankers Preferred Real Estate Loans and Carol Rodoni of Bamboo Consulting, Inc. for this information above. They will be hosting a HAFA seminar on April 30, 2010 in San Mateo. Call 650-676-8200 for more details.
Rick Bonetti | Alain Pinel Realtors | 408-857-8800 | DRE #01237009