What Is HAFA?
HAFA is also known as the Home Affordable Foreclosure Alternatives Program and part of Making Home Affordable program.
HAFA goes into effect April 5th, 2010 and will incentivize the lender and borrower to move forward with a Shortsale or Deed-in-Lieu of Foreclosure. The process is designed to create a simplified and streamlined process. There are many benefits to the program and it sounds good…maybe a bit too good. The program requires those loans underwritten by Fannie Mae or Freddie Mac to submit to the guidelines. If you’re not sure if your loan is a federally backed loan, you can check the Making Homes Affordable website to search for your loan originator and see if the lender qualifies. If you want to search for your Mortgage company information you can search under “contact your mortgage servicer.
Additionally, HAFA’s sites offer these benefits:
- Complements HAMP by providing viable alternatives for borrowers who are HAMP- eligible.
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- Prohibits 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.
- Requires that borrowers be fully released from future liability for the debt. Uses standard processes, documents and timeframes.
- Provides financial incentives to borrowers, servicers and investors.
Who Qualifies
The qualification process is actually began when once requests a loan modification and doesn’t fit the model. It is a process.
Here are the qualifications:
- The property is the borrower’s principal residence;
- 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.
The Benefits?
The benefits to the Borrower seeking a Shortsale are pretty straightforward.
While servicers may amend the terms of the SSA in accordance with investor requirements, applicable laws or local real estate practice, at a minimum the SSA must include the following:
- A fixed termination date not less than 120 calendar days from the effective date of the SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months, in accordance with the requirements of the investor.
- A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
- Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
- The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
- The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
- A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
- Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
Supplemental Directive 09-09 Page 6 - Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.
- An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
- An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
- Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.
- Notice that a short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
- The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31% of the borrower’s gross monthly income.
- An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
- Terms under which the SSA can be terminated.
Forms for the Borrow (Seller)
- Short Sale Agreement (Exhibit A)
Last updated: March 26, 2010 - Request for Approval of Short Sale (Exhibit A1)
Last updated: March 26, 2010 - Alternative Request for Approval of Short Sale (Exhibit B)
Last updated: March 26, 2010 - Deed-in-Lieu of Foreclosure Agreement (Exhibit C)
Last updated: March 26, 2010
My Reservations
Look, it wouldn’t be a “Matthew” post if I didn’t editorialize it. I think the opportunity to get unified practices, a pre-approved sales pricing to enter as the MLS asking price and a 10 day answer after submission of the contract (which usually takes months and months) is all great. The problem is getting the information out to everyone and doing so in enough time to go through the attempted modification and then apply for the HAFA program before the foreclosure actually occurs.
The eligibility is straight forward, but how long will it take to process? Only time will tell. This program is also open for non-Freddie Mae and non-Freddie Mac loans, but the minimal financial incentive to the Conventional Lenders may not benefit enough to hire the staff sufficient to make the program work.
As I said, only time will tell. Jennifer and I are keeping up with this and if you’re a seller in the Fredericksburg, Spotsylvania or Caroline, VA region and you’d like us to help you with this process; please contact us. Our information is here on the right.
