Home Affordable Foreclosure Alternative (HAFA)

The Making Homes Affordable Program, announced in March 2009, offers strong options for homeowners seeking alternatives to foreclosure and is part of the Obama Administration’s broad, comprehensive strategy to get the economy and housing market back on track.  

There are many individual programs that make up the larger Making Homes Affordable initiative.One of the possible ways to help families stay in their homes is to modify mortgages to make them more affordable through a program called the Home Affordable Modification Program or HAMP.

While many families have received help through HAMP, far too many won’t be able to keep their home even with a loan modification.For these families, the Treasury Department has established a new short sales program called the Home Affordable Foreclosure Alternatives Program or HAFA.HAFA is designed to streamline short sales by providing a uniform process and standard forms, as well as incentives for families and their mortgage servicers to complete the process.

It is important to note that there are actually different versions of the HAFA program, each with their own rules/guidelines and the version depends on who owns the mortgage loan.

Treasury version for non-GSE loans (loans not owned/backed by Fannie Mae or Freddie Mac) – effective April 5, 2010This article deals ONLY with the Treasury HAFA program

• Fannie Mae version for GSE loans (loans owned/insured by Fannie Mae)
• Freddie Mac version for GSE loans (loans owned/insured by Freddie Mac)

Note:  VA and FHA Loans are not eligible for HAFA.  Each of these government institutions have their own short sale programs.  Click here for the VA Compromise Program and here for the FHA Pre-Foreclosure Program.

HAMP Eligibility

Before a homeowner can be eligible for HAFA, they first have to apply to HAMP, Home Affordable Modification Program. Here are the rules to be eligible for the HAMP program:

• Only personal residences are eligible.
• The mortgage amount must be less than $729,750.
• The borrower suffers a hardship such as loss of income, an increased mortgage payment or an unexpected increase of expenses.
• The mortgage originated before January 1, 2009.
• The PITI mortgage payment, including HOA, is more than 31% of the borrower's gross monthly income.

If any one of the 5 rules do not apply, then the borrower is not eligible for HAMP.

Eligibility Requirements for HAFA Short Sales

Once the borrower is rejected for a loan modification through the HAMP Program, the borrower is then eligible to apply to the HAFA Short Sale program or pursue a Deed in-Lieu-of Foreclosure.

HAFA will pre-approve the price of that short sale and give the seller 4 months to sell the property through a real estate agent. Here are the HAFA eligibility requirements as of April 28, 2010 - SEE IMPORTANT HAFA UPDATES EFFECTIVE FEBRUARY, 1 2011 LATER IN THIS ARTICLE:

• Only principal residences are eligible – investment or second homes are not eligible
• The unpaid principal balance of the mortgage must be less than $729,750.
• The mortgage must be delinquent or default must be reasonably foreseeable.
• The mortgage must be a first lien and originated before January 1, 2009.
• The seller was rejected by HAMP for a loan modification.
• The borrower's total monthly mortgage payment must exceed 31 percent of gross income.

Servicers must consider HAMP-eligible borrowers for HAFA within 30 calendar days after the borrower does at least one of the following:

• Does not qualify for a HAMP trial period plan
• Does not successfully complete a HAMP trial period plan
• Is delinquent on a HAMP modification (misses at least two consecutive payments)
• Requests a short sale or DIL

If the servicer determines a borrower is eligible based on its written policy and has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer’s duty to give a HAFA offer. If the borrower asks for consideration but a short sale or DIL is not available, the servicer must inform the borrower with an explanation and provide a toll-free number.

Short Sale Agreement

Sale Contract

Within 3 business days of receiving a signed offer to purchase, the seller and listing agent must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including:

• a copy of the sale contract and all addenda
• buyer documentation of funds or preapproval/commitment letter from a lender
• all information on the status of subordinate liens and/or negotiations with subordinate lien holders.

   

Servicer Approval

Within 10 business days after the servicer receives the RASS and all requiredattachments, the servicer must approve or deny the request and advise the borrower (with a statement of the reasons in the case of disapproval).

Important HAFA Updates Effective February 1, 2011

On December 28, 2010, the US Treasury Department issued Supplemental Directive 10-18 which provides some very important policy updates to the HAFA program.  These go into effect February 1, 2011, however, servicers may implement the changes outlined in the directive earlier if they comply. They are as follows:

Monthly Gross Income - While updated financial information must still be obtained from the borrower to determine HAFA eligibility, servicers are no longer required to verify a borrower’s financial information to determine if the borrower’s monthly mortgage payment exceeds 31% of the borrower’s monthly gross income.

Vacant Property – until this update, a property had to be a principal residence to be eligible for HAFA.Now, vacant properties or ones rented to someone other than the borrower for not more than 12 months prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative RASS) or Deed in Lieu of Foreclosure Agreement is eligible as long as the borrower provides documentation that it was the borrowersprincipal residence prior to relocating and the borrower has not purchased a 1-4 unit property during the 12 month period prior to the date of the SSA, Alternative RASS or deed in lieu of foreclosure agreement.The reason for relocation does not need to be connected to employment and there is no minimum distance requirement

Release of Subordinate Liens – servicers are no longer limited by the 6% cap with respect to payments to each subordinate mortgage/lien holder.The servicer will determine the amount or percentage of the unpaid principal balance of the lien that will be paid to each subordinate mortgage/lien holder until the $6000 aggregate cap is reached.

Timing for Issuance of Short Sale Agreement – The servicer must send the borrower a Short Sale Agreement with the price the mortgage/lienholder is willing to accept no later than 30 calendar days from the date the borrower responds to the servicer’s HAFA solicitation.If an unsolicited borrower request consideration under HAFA, the servicer must evaluate the borrower’s eligibility and, if eligible, complete and send the borrower a Short Sale Agreement no later than 30 calendar days from the date of the borrower’s request.

Timing for Response to Alternative Request for Approval of Short Sale – No later than 30 calendar days from the date of receipt from the borrower of an executed sales contract, Alternative RASS, and a signed Hardship Affidavit or RMA, the servicer must communicate approval or disapproval of the sale or provide a counter offer on the Alternative RASS.

         Alternative Deed in Lieu of Foreclosure Programs – DIL Agreements between servicers and borrowers that provide an option for the borrower to continue to occupy the property on a rental basis (deed for lease) or provide an opportunity for the borrowers to repurchase the property at some future time are also eligible for financial incentives under HAFA, so long as all other program requirements are met.

Determine if Your Lender Participates in the HAMP Program

It's important to know if your lender participates in HAMP, because lenders that participate in HAMP also participate in HAFA. All Fannie Mae and Freddie Mac lenders are required to participate in HAMP (and therefore, HAFA). Here is a list of all HAFA participants as of May, 2010.

Benefits to a HAFA Short Sale

There are many benefits to a HAFA short sale, including:

• Allows borrowers to receive preapproved short sales terms before listing the property (including the minimum acceptable net proceeds and acceptable closing costs).
• Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holders receive an incentive under HAFA, those debts as well (no cash contribution, promissory note or deficiency judgment is allowed.
• Junior lenders can receive up to 3% of the loan balance or $3,000 maximum to release the loan.
• First lenders will receive a government payment of up to $2,000 to approve the short sale (on a 3-to-1 matching basis for paying up to $3,000 to each junior lender), and the investors receive up to an additional $1,500 to cover administrative costs.
• Sellers will receive a government payment of $3,000 at close of escrow to cover relocation expenses.
• Mortgage servicers will receive $1,500 to cover administrative and processing costs
• Sellers will not be required to make a seller contribution.
• Lenders must agree not to foreclose during the short sale process.
• Second lenders can no longer try to force a seller to commit short sale mortgage fraud by demanding payments outside of escrow.
• Prevents ‘flipping’ as the property cannot be re-sold within 90 calendar days of closing.
• The mortgage servicer must respond to a reasonable offer within 10 business days of receipt of all the required documents including the signed purchase offer and Request to Approve a Short-Sale (RASS).
• Closing will occur in a reasonable timeframe but not sooner than 45 calendar days from the date of the sales contract, unless all parties agree to a shorter timeline. If local or state law does not govern, the servicer must release its first mortgage lien within 30 business days.
• All parties must sign an arm's length affidavit. In other words, the seller cannot sell to a person the seller knows or to whom the seller is related.

HAFA Deed-in-Lieu of Foreclosure

With the Deed-in-Lieu of Foreclosure, the homeowner voluntarily transfers ownership of the property to the servicer in full satisfaction of the total amount due. The servicer may require that the homeowner list and market the property as a short sale before they agree to a deed-in-lieu arrangement. However, under circumstances acceptable to the investor, the servicer may accept a DIL without the borrower first attempting to sell the property. In order for the Deed-in-Lieu of Foreclosure to work, the homeowner must provide a marketable title, free and clear of other mortgages, liens, or other encumbrances.

HAFA FAQS on official Making Home Affordable website:http://makinghomeaffordable.gov/borrower-faqs.html

What is an SFR?

The complex details involved with short sales and foreclosures are unique calls for specialized expertise.Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to guiding you through the process, setting realistic expectations, and helping you make the right decision to avoid foreclosure.

If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on.For your protection, I suggest that all homeowners:

• Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
• Call an accountant or CPA to discuss short sale and foreclosure tax ramifications

Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.

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Joanne Flick, Broker/Realtor® | 3840 Henderson Dr., Jacksonville, NC 28546
joanne@joanneflick.com | Direct: (910) 787-2160 | Fax: (509) 351-6124