HAFA is finally here

• The much awaited HAFA- Home Affordable Foreclosure Alternative- provides opportunities for homeowners who can no longer afford to stay in their home but want to avoid foreclosure to transition to more affordable housing through a short sale or deed-in-lieu of foreclosure.

HAFA, which is part of the Home Affordable Modification Program (HAMP), aims to help homeowners who are unable to qualify for a loan modification under HAMP by providing them with the option to pursue a short sale or deed-in-lieu.

Under the program, financial incentives are provided to servicers and borrowers who utilize these foreclosure alternatives. The Treasury Department released HAFA guidelines on November 30, 2009, but participating servicers were not required to implement the program until April 5, 2010. That deadline is now here.

Many Realtors say that the employees of many servicers have not yet heard about the program, making it clear that many servicers will not be rollin gout the Red Carpet just as yet. However, many servicers are ready, and hopefully this program will be a success.

According to the program guidelines, once a borrower is determined to be ineligible for a HAMP modification, the servicer must consider that borrower for HAFA within 30 days. Every potential eligible borrower must be considered for the program before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted.

If the servicer determines that the borrower is eligible, the short sale or deed-in-lieu process will begin. Qualified borrowers will be given pre-approved short sale terms before the property is listed, and once an offer is made, mortgage servicers will have 10 days to approve or reject the sale. To encourage HAFA participation, the Treasury Department has raised financial incentives under the revised supplemental program in late March.

Borrowers are now eligible for $3,000 in relocation assistance, and servicers will receive $1,500 to cover administrative and processing costs for a short sale or deed-in-lieu completed under the program. In addition, investors will be paid as much as $2,000 for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis, and to receive the incentive, subordinate lien holders must release their liens and waive all future claims against the borrower.

HAFA does not apply to GSE loans and second lien holders are being encouraged to cooperate but there is no law mandating this acceptance. Major lenders and servicers have joined the program but as for now it does seem like major sevicers have signed on and smaller servicers are still not on board.

HAFA Consideration ( Excerpt taken from the 45 page HAFA document)

Each participating servicer must develop a written policy, consistent with investor guidelines, that describes the basis on which the servicer will offer the HAFA program to borrowers. This policy may incorporate such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions and borrower motivation and cooperation.

Servicers may not solicit a borrower for HAFA until the borrower has been evaluated for a HAMP modification in accordance with the provisions of Supplemental Directive 09-01 and any supplemental HAMP guidance. Borrowers that meet the eligibility criteria for HAMP but who are not offered a Trial Period Plan, do not successfully complete a Trial Period Plan, or default on a HAMP modification should first be considered for other loan modification or retention programs offered by the servicer prior to being evaluated for HAFA.

In accordance with the provisions of Supplemental Directive 09-01, a loan meets the basic eligibility criteria if all of the following conditions are met:

• The property is the borrower’s principal residence, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative (RASS) or DIL Agreement if the borrower provides documentation that the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence indicating that the borrower has purchased a one- to four-unit property 90 days prior to the date of the SSA, Alternative RASS or DIL Agreement;
  
• 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 $729,7501;
  
• and The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income.

Pursuant to the servicer’s policy, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:

• Does not qualify for a Trial Period Plan;
• Does not successfully complete a Trial Period Plan;
• Is delinquent on a HAMP modification by missing at least two consecutive payments;
  
• or Requests a short sale or DIL. The date and outcome of the HAFA consideration must be documented in the servicer’s file.
  

If you or anyone you know who has been considering Short Sale as an option, please contact me for a private consultation. A Short sale may or may not be the right option for everyone.