On February 28th of this year, we wrote about the often cited and misapplied government sponsored loan modification program known as the Home Affordable Modification Program (HAMP). Now some short months later, the government has introduced a new program under the Making Home Affordable umbrella, called Home Affordable Foreclosure Alternatives (HAFA). This new program began to be utilized by HAMP participating servicers on April 5, 2010. The new program is designed to assist HAMP qualified homeowners who were denied a permanent loan modification nevertheless avoid foreclosure through a short sale or deed-in-lieu of foreclosure.
There are many benefits of the HAFA program, most notably a requirement that the borrower have no future liability to the first mortgage lender accepting the HAFA short sale. Additionally, if any junior lien holder accepts funds under the HAFA short sale, it too is prohibited from holding the borrower liable for the unpaid portion of the loan. In essence, the HAFA program may result in extending to homeowners who short sell their properties anti-deficiency protection similar to the protections already available under the Arizona anti-deficiency statutes to certain homeowners who go through a foreclosure. In Arizona, this has been a major disadvantage to the homeowner who elects a short sale rather than allowing the property to go through foreclosure.
Another major benefit of HAFA is that it provides for the advance disclosure by the lender of the minimum net proceeds it will accept in the short sale transaction. This is designed to remove some of the confusion and frustration experienced by borrowers and their real estate agents when pursuing a short sale. Now they will know in advance what price they can list the property for and which offers will be accepted by the lender.
The latest revisions to the HAFA guidelines provide for relocation assistance of $3,000 to be given the borrower upon the completion of a successful HAFA short sale. These funds are intended to assist a struggling homeowner make the transition from a lost property to their next home.
All servicers participating in HAMP are required to implement HAFA based on their own written policy and in accordance with investor guidelines. Factors that may be included in the implemented policy include the severity of the potential loss, timing of pending foreclosure actions, local market conditions, and borrower motivation and cooperation.
HAFA differs from the normal short sale arrangement in that a specific procedure is required to be followed by the borrower and the borrower’s listing agent as well as the loan servicer participating in HAFA. The introduction of standardized guidelines, deadlines, and rules should assist all those seeking to short sell their property through the HAFA program.
Because of the connection to the HAMP program, it is not surprising to see that many of the requirements for HAFA mirror those of HAMP. In fact, because the program is designed to aid borrowers in a short sale or deed-in-lieu transaction when they are not eligible for HAMP, much of the same information can and should be provided to the lender for the HAFA review.
In order to be considered for the HAFA program, one must meet the following basic requirements:
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Primary Residence - The mortgage must be on the borrower’s primary residence;
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Date - The mortgage must be dated prior to January 1, 2009;
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Size Limit -The mortgage must be equal to or less than $729,750;
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Hardship –The mortgage must be delinquent or default on the mortgage is reasonably foreseeable;
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Debt-to-Income Ratio -The payment on the first mortgage (including principal, interest, taxes, insurance and HOA dues) is more than 31% of current gross income;
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Arm’s Length Transaction – A borrower cannot list or sell the property to a relative or anyone else with whom they have a close personal or business relationship.
While not all borrowers desiring a short sale or deed-in-lieu will qualify for HAFA, those that do may be pleasantly surprised to see the newly introduced protection and incentives provided. Borrowers will be wise to seek the assistance of qualified professionals to help them qualify for these programs and complete the loan modification, short sale or deed-in-lieu transaction. These options all have differing legal and tax ramifications and qualified professionals can insure that the borrower is well informed and chooses the loss mitigation alternative best suited to the borrower’s situation. Professional assistance can also greatly increase the likelihood of acceptance into the program and a successful loss mitigation experience.
