HAFA – Home Affordable Foreclosure Alternatives

This article is being published in an attempt to help put into layman’s terms some of the verbiage in the directives associated with the Home Affordable Foreclosure Alternatives Program. I hope it helps.

Possibly one of the least successful programs the federal government has ever instituted is the Home Affordable Modification Program, known to some as HAMP. This program along with the Home Affordable Foreclosure Alternatives makes up the current Making Home Affordable initiative from the government. The purpose of HAMP was to provide an avenue for homeowners to refinance their mortgage to make the monthly payments more affordable. It seems as though the lenders tightened their lending practices just about the same time that the HAMP program was launched. Recent news reports have stated that as few as 5% of eligible home loans have received a permanent modification. The latest report of the HAMP Program from March 2010 shows a total of 230,801 permanent modifications have been done since the program’s inception in early 2009. At this rate it will take about 25 years for eligible loans to get modified. The requirements for a HAMP loan modification are as follows:

•    Homeowner desires to keep their home
•    The mortgage loan must be for the homeowner’s primary residence.
•    The mortgage must have been originated prior to January 1, 2009.
•    The amount of the loan should be $729,750 or less
•    If the account is not in default, the homeowner must be able to demonstrate imminent danger of default, which can include providing proof of a financial hardship, job loss, etc.
•    The payment on the first mortgage (second liens do not qualify for the program) must be more than 31% of the homeowner’s gross income. This includes principal, interest, insurance, taxes, and HOA fees. The gross income includes all borrowers, if more than one person signed the note.

The reason for starting this article with HAMP information and requirements is due to fact that in order to be eligible for the HAFA Program, a seller must first be HAMP eligible. The HAFA Program went into effect on April 5, 2010 and is due to expire on December 31, 2012. Where HAMP is designed for homeowners who desire to remain in their home HAFA is for homeowners who, due to the declining market and current economic conditions, desire to “Short Sale” their home or provide the lender with a “Deed in Lieu of Foreclosure”. HAFA is not for FHA, VA, Fannie Mae or Freddie Mac backed loans. To find out if your loan is eligible you must contact your servicer. HAFA requirements state that the homeowner:

•    Must be HAMP Eligible
•    The home must be the Primary Residence
•    The loan must have been originated before 01/01/2009
•    The loan must be in default or be reasonably suspect of going into default
•    The loan amount must be under $729,750
•    The monthly payment must exceed 31% of the homeowners Gross Income

HAFA vs. Traditional Short Sale

In a traditional Short Sale transaction everything is a guess regarding price and terms. The seller, homeowner, may agree to specific terms and conditions only to have the lender reject the transaction. With a non HAFA transaction the property would be marketed, then an offer received and then the waiting game, some of which we have seen go longer than 6 months, begins. See the timeline below for more information on HAFA timelines. With a HAFA transaction most of the waiting time is spent on the front end of the sales process prior to an offer being presented.

With a HAFA transaction the price, the closing costs contributions by the seller along with other variables are established by the lender. The lender is then bound by these terms for 120 days. Buyers will know the terms of the purchase from the start rather than having to play a wait and see game. This fact alone should help shorten the timeline for prospective buyers and hopefully eliminate those horror stories we have heard about regarding the amount of time involved in getting a short sale closed.

How to Get Started With HAFA

Even if you have not applied for or been contacted by your lender regarding a loan modification, to begin the HAFA process you start with the Request for Modification and Affidavit. On this form you will fill in the basic information paying special attention to the “Hardship Affidavit” section of the form. You should attach documentation showing that the monthly payment on your home exceeds 31% of your gross monthly income.

Benefits of HAFA for Sellers

HAFA provides some very special and important benefits compared to the traditional short sale for the homeowner who is facing foreclosure.

•    Seller is released of all liens
•    Shortened timeline after the receipt of a contract
•    Seller gets a $3,000 relocation allowance
•    The lender is bound by the established price and terms for 120 days

Disadvantages of HAFA for Sellers

While the upside seems to outweigh the downside of a HAFA transaction it would be inappropriate not to disclose the disadvantages also. As we see it the disadvantages for the Seller in a HAFA transaction are as follows:

•    Must be an arm’s length transaction
•    The Seller may have to pay taxes on the debt forgiven and the relocation allowance
•    Reporting to the major credit bureaus that the mortgage was settled for less that the full payment
•    You must have clear title to the property. Second lien holders must agree to a substantial short payoff. If a second position does not agree then all of this work has been for nothing
•    If you sign the standard Short Sale Agreement as it is written you are agreeing that if the home does not sale in the 120 day time period, you are agreeing to a Deed-in-Lieu of Foreclosure

Seller Responsibilities

In a HAFA transaction the homeowner is responsible for several items regarding the home:

•    All property maintenance both interior and exterior
•    All Utilities
•    Any Assessments
•    Association Dues
•    Maintain Insurance on the property

HAFA Timelines

In any real estate transaction timelines are an important part of the documentation required to achieve a successful closing. Timelines in HAFA are no different. Let’s look at the timelines in a HAFA transaction:

•    Lender responds to Request for Modification and Affidavit….No Specific Timeline
•    Seller and Broker respond to Short Sale Agreement(SSA)……14 Calendar Days
•    Seller responds to Alternative Request for Approval of Short Sale….14 Calendar Days
•    Request to Approve a Short Sale(RASS) 3 Business Days from receiving an offer
•    Lender response to Request to Approve a Short Sale………….10 Business Days

Important Certifications from the Seller

There are several very important items that as the seller you must certify. Under penalty of perjury you certify that:

1.    This is an arm’s length transaction, between the parties who are unrelated and unaffiliated by family, marriage or commercial enterprise
2.    There are no agreements or understandings between you and the buyer that you will remain in the property as a tenant or later obtain title or ownership of the property
3.    Neither you nor the buyer will receive any funds or commissions from the sale of the property
4.    There are no agreements or offers relating to the sale or subsequent sale of the property that have not been disclosed to the Servicer

Is That All

My intention is to present as complete an overview as possible and put it in layman’s terms for everyone to understand. I feel certain that with the HAFA Program having just launched that there will be changes as the program evolves. I will attempt to keep you posted as I become aware of changes to this program.

If you are in a situation where it may be necessary for you to short sale your home and would like free no obligation counseling on your options, feel free to give me a call or contact me by email. I will do everything I can to assist you through this difficult time.