On April 5, 2010 the Home Affordable Foreclosure Alternatives (HAFA) program went into effect. HAFA was designed to help owners who are unable to retain their home under the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure. Servicers participating in HAMP are also required to comply with HAFA. HAFA provides the loan servicer, junior lien holder, and sellers incentives for these transactions and is designed to simplify and streamline short sales and deeds-in-lieu of foreclosure.
Who is eligible for HAFA?
The borrower must meet the basic eligibility criteria for HAMP:
- The home must be your primary residence.
- First lien originated before 2009.
- Mortgage must be delinquent or default is reasonably foreseeable.
- Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
- Borrower’s total monthly payment exceeds 31% of gross income.
In addition, loan servicers must consider HAMP-eligible borrowers for HAFA within 30 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 2 consecutive payments).
- Requests a short sale or DIL.
What are the benefits of HAFA?
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds and approvable closing costs).
- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed). In my opinion, this is the critical element. In addition, Junior lien holders accepting a HAFA incentive must also release borrowers from future liability.
- Uses standard processes, documents, and timeframes/deadlines.
- Provides financial incentives: $3,000 for borrower relocation assistance; $1,500 for servicers to cover administrative and processing costs; and up to $2,000 match for investors for allowing a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders.
- The loan servicer cannot complete a foreclosure during a fully executed short sale agreement or while determining the borrowers eligibility.
Not all loan servicers are currently participating in HAFA. Most of the big lenders are, including Bank of America, Chase, GMAC, and Wells Fargo. HAFA does not apply to FHA or VA loans. If your loan is owned or guaranteed by Fannie Mae or Freddie Mac you are not eligible for HAFA. How do you know? Try these links: