Home Affordable Foreclosure Alternative

Came upon this – may be useful to some folks out there in distress:

Home Affordable Foreclosure Alternative (“HAFA”) Program

The new federal Home Affordable Foreclosure Alternative (“HAFA”) Program goes into effect on April 5, 2010, but lenders can voluntarily implement this program earlier. This program offers guidelines intended to speed up and standardize short sale and deed-in-lieu (“DIL”) transactions.

While these guidelines are voluntary, and most of the larger lenders, and many smaller lenders, are expected to participate. HAFA is a part of the more comprehensive Home Affordable Modification Program (HAMP).

HAFA was added to HAMP to provide financial incentives to servicers and borrowers who utilize a short sale or a DIL to avoid foreclosure on an eligible loan; and to provide viable alternatives for borrowers who are HAMP eligible.

HAFA FEATURES: The HAFA program incorporates the following features:

• Utilizing borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

• Allowing the borrower to receive pre-approved short sale terms prior to the property listing (including the minimum acceptable net proceeds).

• Prohibiting the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement (if not greater than 6%).

• Requiring that borrowers be fully released from future liability for the debt (no cash contribution, promissory note, or deficiency judgment would be allowed).

• Servicers get $1,000 to cover their costs.

• Subordinate lienholders get up to $3,000 in exchange for relinquishing their lien.

• Borrowers receive $1,500 to defray their moving costs.

ELIGIBLE LOANS: To qualify, loans must meet the following conditions:

• Not owned or guaranteed by Freddie or Fannie (but they are expected to release similar guidelines in the future).
• Borrower’s principal residence.
• Loan is the first lien on the property.
• Originated on or before January 1, 2009.
• Loan is in default or is reasonably foreseeable.
• Current unpaid balance is equal or less than $729,750 (Higher limits for 2-4 unit dwellings).
• Borrower’s total monthly mortgage payment exceeds 31% of borrower’s gross income.

WHAT DOES THIS MEAN?

1. This program is voluntary; and Freddie and Fannie loans, which make up a large portion of the market, do not qualify so it will be a while to see how many lenders actually participate, and how many loans actually qualify.

2. Lenders will take months to modify their forms, processes and practices to comply with HAFA, so there will likely be a delay in implementation even for those lenders who do participate.

3. To the extent that a loan qualifies under HAFA and the lender is participating, it will be easier to market the property knowing what he lender will demand as a short payoff.

4. Also, to the extent that sellers will not have to worry about liability to the lender after the short sale, sellers will not be tempted to cancel the short sale and opt for a foreclosure instead.

See Weekly Practice Tip: “Short Sale Seller Still Liable”

5. Lenders will not be able to cut commissions specified in the listing agreement if not more than 6%.

For more information on HAFA go to the NAR site at:

http://www.realtor.org/wps/wcm/connect/bf232c8040a1a8b79c84ff1890ffcf5b/government_affairs_hafa_faqs_121109.pdf?MOD=AJPERES

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