Section One - BACKGROUND
We should all be familiar by now with HAMP (Home Affordable Modification Program). That is the program that was set up to apply uniform loan modification processes to assist eligible borrowers to obtain monthly payments on their 1st mortgages that were affordable. What has happened (and was expected), is that some borrowers do not qualify for, default on or choose not to participate in the modification process.
Hence, HAFA (Home Affordable Foreclosure Alternatives Program). HAFA is part of HAMP. The program provides incentives to servicers and borrowers who choose to go the route of SS (Short Sales) or DIL (Deed-in -Lieu). A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. A deed-in-lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower ) conveys all interest in their property to the mortgagee (i.e. the lender) to satisfy a loan that is in default.
These alternatives reduce the need for the lengthy and expensive foreclosure process. They also help to preserve to condition and value of the property. You know - foreclose and the homeowner may trash the place, or the property is vacant and subject to vandalism and neglect.
This Supplemental Directive has been written to help servicers adopt and implement HAFA. Now this is not for all loans. It only covers 1st mortgages that are not owned or guaranteed by Fannie Mae or Freddie Mac. In other words Non- GSE (Government Sponsored Enterprise) Mortgages.
Here is a little history for you.... The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government-sponsored enterprise(GSE), but founded in 1938 during the Great Depression. The corporation's purpose is to purchase and securitize mortgages in order to ensure that funds are consistently available to the institutions that lend money to home buyers. The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac (NYSE: FRE), is a government sponsored enterprise(GSE) of the United States federal government. The FHLMC was created in 1970 to expand the secondary market for mortgagesin the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securitiesto investors on the open market. (Thank you Wikipedia).
To participate in HAFA the servicer must execute a servicer participation agreement (SPA) with Fannie Mae in its capacity as financial agent for the United States (as designated by Treasury) on or before December 31, 2009. As a result, servicers already participating in HAMP must follow the guidance set forth in the Supplemental Directive, which provides servicers with the option to determine the extent to which short sales or deeds-in-lieu will be offered under this program. If a loan is a Fannie or Freddie the servicer already is working under the applicable HAFA mandates.
The Directive goes in to effect on April 5, 2010, but those servicers already participating in HAMP can implement HAFA now as long as they can comply with the Reporting Requirements. I will address those requirements in another Blog. The program can be applied to SS and DIL that are fully executed by the borrower and received by the Servicer on or before December 31, 2012.