Overview of the Home Affordable Foreclosure Alternatives Program (HAFA)

The Home Affordable Foreclosure Alternatives Program (HAFA) is an initiative to encourage a streamlined short sale process to allow homeowners at risk of a foreclosure to sell their property for less than what is owed on their mortgage. The Treasury Department announced that the program would take effect April 5, 2010 and would continue until December 31, 2012. Here is what a borrower can expect from the HAFA program. 

Background
The HAFA program is an extension of the Home Affordable Modification Program (HAMP) which attempts to modify a borrower's existing loan to prevent foreclosure. As many participants in the HAMP program have had little success in obtaining a permanent loan modification, the HAFA program would be the next best alternative to avoiding foreclosure. The key differences are with HAMP, the homeowner has the possibility to keep their home at a lowered rate, whereas with HAFA, the homeowner will walk away from the home as well as their financial obligation to repay the debt.

HAFA Eligibility
When a borrower submits a HAFA application to their loan servicer, it must meet certain eligibility requirements. All of the following requirements are necessary to participate in HAFA:

• The property submission must be for the homeowner’s principal residence.
• Only the first lien holder can accept the HAFA application and the loan must have been originated prior to January 1, 2009.
• The mortgage could either be seriously delinquent, or default is foreseeable in the near future.
• The unpaid principal on the loan is no more than $729,750 for a single family residence.
• The monthly mortgage payment and associated fees must be more than 31 percent of every borrower's gross income on that loan.
• The loan servicer has already considered the borrower for the HAMP program, however one of the four following circumstances has occurred:

 o The borrower did not qualify for the HAMP program.
 o The borrower has not successfully completed the HAMP Program.
 o The borrower is 2 payments late on a loan that’s been modified through HAMP.
 o The borrower has requested a short sale or deed-in-lieu.

Borrowers eligible under the HAMP program must be given consideration for HAFA within 30 days of HAMP termination or request for short sale / deed-in-lieu. Every eligible borrower has the right to be considered for HAFA before their loan is referred to foreclosure. Yet, loan servicers still have the right to deny a HAFA application. If the primary mortgage holder decides to approve the borrower’s application, they are agreeing to accept the proceeds from the sale of the home as payment in full and will not go after the borrower for the balance of the loan.

HAFA Incentives: Let’s Get This Home Sold

HAFA has added incentives to encourage everyone involved in the short sale to cooperate. A $1000 bonus is given to the servicing lender and a portion of the proceeds from the sale of the home, up to $3,000 are given to the 2nd lien holder with the prior approval from the primary holder. Once the 2nd lien holder accepts this agreement, they are waiving their right to collect the balance due on their loan as well. Also, the primary lien holder will not be held responsible if the 2nd lien holder does not agree to waive their rights and continues to pursue the borrower for the balance of their loan. Any mortgage investors who hold interest in the loan are given up to $1000 to share the proceeds with the 2nd lien holder. The listing real estate agent is guaranteed a 6 percent commission which the lender cannot lower. Relocation assistance is also provided to the homeowner in the amount of $1500.

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