Dennis Norman
Last week the Treasury Department announced the Home Affordable Foreclosure Alternatives Program (HAFA), the latest program under the Home Affordable Modification Program (HAMP), designed to offer alternatives to homeowners facing foreclosure.
THE HAFA PROGRAM:
The Home Affordable Foreclosure Alternatives Program provides financial incentives to loan servicers as well as borrowers who do a short-sale or a deed-in-lieu to avoid foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives help the lender out by avoiding the potentially lengthy and expensive foreclosure proceedings and also by protecting the property by minimizing the time it is vacant and subject to vandalism and deterioration. These options help out the borrower by avoiding the foreclosure process and the uncertainty that comes with it and allows the borrower to negotiate when they will give up possession of their home as well as, under the HAFA program be released from any further liability from the loan including short-fall and deficiencies.
How a Short-Sale Works:
Under a short sale, the lender will allow the homeowner to list and sell their home just like they normally would but with the understanding that the amount of net proceeds realized from teh sale may not be enough to pay off the loan in full. Under the HAFA program all short-sales have to be arm’s length (no selling it to your kids or relatives) with ALL net proceeds (after paying commission and normal closing costs) going to the lender to be applied toward the mortgage on the home. Under this plan the lender accepts this lessor payoff amount in FULL SATISFACTION of the total amount due on the mortgage, meaning you are off the hook for the balance (It is important to note this is not true in ALL short-sales…I’m talking specifically about those done under this program)
What is a Deed-In-Lieu?
Under a deed-in-lieu the homeowner voluntarily transfers ownership of their home to the lender in FULL SATISFACTION of the total amount due on the mortgage. The lender is not going to be willing to accept a deed to the borrowers property unless the borrower can deliver marketable title (meaning you must not have other liens against the property) and generally then only after the homeowner has made a good-faith effort to sell the property.
Under the HAFA program, if your lender does a short-sale or deed-in-lieu with you, they may not require you to make a cash contribution, ask you to sign a note for the short-fall or deficiency, nor sue you for any remaining amounts owed (again, it is important to note this is not true in ALL short-sales and deeds-in-lieu…I’m talking specifically about those done under this program)
So how do you find out if you are eligible?
OK, so this is a goverment program, so you know it’s not going to be easy. For starters you need to see if you are eligible for a HAMP loan modification prior to your lender offering you any options under the HAFA program. The easiest way to see if you are eligible for a HAMP loan modification is to click on any of the HAMP links to be taken to the Making Home Affordable Website on which you can quickly find out if you are eligible. Then if you are eligible for the HAMP loan modification but your lender does not offer you a Trial Period Plan, or they do offer you a Trial Period Plan but you do not successfully complete it, or you default on a loan that has been modified by HAMP, then after your lender has considered you for other loan modification plans but feels you are not eligible, then finally you can be considered for the HAFA program. So, it’s not easy or fast, but this is a major step for both you and your lender and you really do want to make sure all better possible alternatives are exhausted before going this route.
What are the qualifications to be eligible?
After you get through all the steps above then the lender can review your situation to see if you qualify for the HAFA program. Those qualifications include:
- The property must be the borrower’s principal residence
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009
- Themortgage is delinquent or default is reasonably foreseeable
- The current unpaid principal balance is equal to or less than $729,750 (for single-family home…higher amounts for 2 to 4 unit dwellings)
- The borrower’s total monthly mortgage payment exceeds 31 percent of the borrower’s gross income.
The directive also states that every potentially eligible borrower must be considered for HAFA BEFORE the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted.
Unfortunately I have heard many horror stories from borrowers who have tried to do a loan modification under the HAMP program, so I would be real curious to hear from borrower’s out there that try to go through this new HAFA program to hear how their experience was.
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