The HAFA program is the government's new Short Sale/deed-in-lieu program. The government created the program in order to assist home owners who can no longer afford their home and who wanted to avoid the damage a foreclosure does to credit. The following is my understanding of the program guidelines as presented in the Making Homes Affordable supplemental directive 09-09.
The government has asked lenders to voluntarily implement a program called Housing Affordable Foreclosure Alternative (HAFA). The start date is April 1, 2010, although it is expected that many lenders will implement the program sooner. Although participation is voluntary, any lender who participated in HAMP is expected to offer HAFA to their at risk borrowers.
Loans in which Fannie or Freddie have an interest do not qualify for the program. They are working on their own short sale program.
In order to qualify for HAFA, a home owner must meet the basic eligibility requirements for HAMP. They are:
- The property is the borrowers principal residence.
- The mortgage is a first lien originated before 01/01/09.
- The mortgage is delinquent or default is reasonably foreseeable.
- The current mortgage balance is $729,750.00 or less.
- The borrowers monthly mortgage payment exceeds 31% of their monthly gross income.
- If the borrower has mortgage insurance, the mortgage insurer must waive their rights to collect any deficiency.
If a borrower meets the following criteria, the participating servicer must give the borrower the option to participate in HAFA.
- The borrower did not qualify for the HAMP trial period.
- The borrower did not sucessfully complete the HAMP trial period.
- The borrower is delinquent on their HAMP modification.
- The borrowersrequests a short sale or deed-in-lieu.
The good news for sellers who participate in HAFA:
- The lender is required to forgive any deficiency.
- The seller will get $1500.00 at close of escrow.
- The short sale will be pre-approved and the listing price will be provided to the listing agent by the loan servicer.
- The servicer will provide written approval within 10 days of receipt of an executed purchase contract.
- The servicer will pay up to 3% to junior lien holders, but no more than $3000.00.
The good news for buyers:
- The endless waiting for short sale approval will be eliminated.
- Servicer will allow up to 45 days for close of escrow.
This program will take all the frustrating unknowns out of the short sale process.
Most of the concerns I have about the program are with other lien holders.The HAFA summary states that it is the borrower's (with the help of their Realtor) responsibility to deal with other lien holders. Experienced short sale agents know how to deal with junior lien holders, however juniors could be a problem based on HAFA guidelines.
The program provided $3000.00 for junior lien holders and requires them to give up their rights to pursue a deficiency. If a junior wants more than $3000.00 or refuses to give up their right to pursue, the borrower may not be able to obtain clear title as required. If there is more than one junior, $3000.00 may not be enough to satisfy them all.
Another potiential issue is that senior liens are not mentioned. Property taxes are considered a senior lien In the current short sale process, lenders will pay past due property taxes in order to obtain clear title. Since the HAFA guidelines state that providing clear title is the borrower's responsibility, one could assume that the borrower would have to pay any past due property taxes, before close of escrow, in order to provide clear title.
Other than the issues that may arise with liens, I feel that this is a program that will give many homeowners the fresh start the are looking for. It is definitely a step in the right direction.