HAFA - Alternatives to Shortsale
Home Affordable Foreclosure Alternatives Program (known as HAFA) went into effect on April 5, 2010.
HAFA allows owners to participate in a “short sale” with standardized procedures and expedited timelines. Short sales are traditionally the hardest and longest transactions to complete and involve dozens of hours of phone calls and paperwork and a very high level of expertise. HAFA, it is hoped, will streamline this process. It is important to note, however, that HAFA does not replace the traditional short sale. Rather, it is a stream-lined short sale process that applies to specific owners who have mortgages with specific, participating lenders.
HAFA Is Not For Everyone
HAFA is not a mandated program that all lenders must follow. Nor does it apply to all distressed home owners. HAFA only applies to lenders that voluntarily participate in the HAMP Mortgage Modification Program. The good news is that this includes most major, national lenders, such as: Citi, Bank of America, Wells Fargo, GMAC Mortgage, Chase, Litton, and many others. The bad news is that the program does not apply to Fannie Mae or Freddie Mac loans, which account for a huge percentage of home loans. Nor does it apply to most smaller, local lenders.
In addition, the program does not apply to the following:
• Loans originated after January 2009,
• Loans with a balance over $729,750,
• Property that is not the seller’s principal residence,
• Loans where the total monthly mortgage payment does not exceed 31% of the seller’s gross income.
Differences Between HAFA and Traditional Short Sales
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Traditional Short Sale |
HAFA |
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The home owner generally does not make mortgage payments up to the date of closing. They live “rent free” during the short sale process. |
Under HAFA, the owner must make mortgage payments up to 31% of their income. Failure to pay the mortgage will disqualify the owner from participating in HAFA. |
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Lenders can demand a deficiency for the amount of the short-fall. In other words, the debt is not forgiven after closing. |
First-Mortgage lenders must waive the deficiency and must negotiate with second-mortgage lenders to waive their deficiency as well. |
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The Seller could receive no funds at closing. |
Sellers can receive “cash incentives” at closing for up to $3,000. |
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Lenders generally budget up to $3,000 to pay second mortgage holders. |
Lenders are given a government incentive of up to $6,000 to pay to second mortgage holders. |
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The property could be sold by a Realtor or For Sale By Owner (FSBO) |
Property must be listed with a Realtor. |
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Lenders can take as long as they wanted to approve or deny the short sale |
HAFA imposes strict and short time-lines on participating lenders |
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Lenders will not begin to “negotiate” a short sale or even initiate the process until a buyer has signed an offer to purchase |
Lenders must start the process at the time or even before the property is listed with a Realtor. |
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Lender does not give short sale approval until days before the closing. |
Lender must approve the short sale, including the amount they will receive within 10 days of receiving the accepted offer. |
These differences are important to understand. More importantly, it is critical to understand that HAFA does not replace the traditional short sale. It is an additional tool that applies to certain lenders and certain homeowners.
Source: Homestead Title Company, LLC
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