Home Affordable Foreclosure Alternatives
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1. What is HAFA?
The Home Affordable Foreclosure Alternatives Program, known as HAFA, is designed to help owners (referred to below as borrowers) who are unable to retain their home under the Home Affordable Modification Program (HAMP). While the first priority is to keep families in their homes, where this is not possible with a loan modification, they may be able to avoid foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL) under HAFA.
The Treasury Department guidelines and forms, updated on March 26, 2010, do not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac. Those enterprises will issue their own HAFA guidance and forms. FHA and VA are not participating in HAFA, because they have their own short sales programs.
The deadline for implementation by servicers was April 5, 2010.
2. Who is eligible?
The borrower must meet the basic eligibility criteria for HAMP:
Principal residence. The property may be vacant up to 90 days before the date of the Short Sale Agreement (SAA), Alternative Request for Approval of Short Sale, or DIL but only if the borrower documents they were required to relocate at least 100 miles from their home for purposes of employment and they have not purchased another property in the 90 day period.
First lien originated before 2009.
Mortgage 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.
3. How is the program being implemented?
Supplemental Directive 09-09 (updated March 26, 2010) gives servicers guidance for carrying out the program. All servicers participating in HAMP must also implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions, and borrower motivation and cooperation.
Short Sale Agreement (SSA). The servicer will send this to the borrower after determining the borrower is interested in a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply.
Request for Approval of Short Sale (RASS). After the borrower contracts to sell the property, the borrower submits a RASS to the servicer within 3 business days for approval.
Alternative RASS. If the borrower already has an executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The Servicer must still consider the borrower for a loan modification.
4. How will HAFA improve the short sales process?
Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
Uses borrower financial and hardship information already collected in connection with consideration of a loan modification under HAMP.
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). Junior lien holders accepting a HAFA incentive must also release borrowers from future liability. They may not require contributions from either the real estate agent or borrower/seller as a condition for releasing its lien and releasing the borrower from personal 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 (on a one-for-three matching basis; up to 6% of the unpaid principal balance of each subordinate loan).
5. What are the timelines for HAFA?
Based on a servicer’s written policy, the servicer must consider every potentially eligible borrower for HAFA.
Servicers must consider HAMP-eligible borrowers for HAFA within 30 days after the borrower does at least one of the following:
o Does not qualify for a HAMP trial period plan.
o Does not successfully complete a HAMP trial period plan.
o Is delinquent on a HAMP modification (misses at least 2 consecutive payments).