HAFA

What is the HAFA Short Sale Program?

Recently, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program.

HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks.

HAFA is a complex program with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure. HAFA:

- Uses borrower financial and hardship information already collected in connection with consideration of a loan modifications

- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

- Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).

- Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).

- Uses standard processes, documents, and timeframes/deadlines.

- Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

- Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

HAFA was introduced to simplify and streamline the short sale process. HAFA accomplishes this in the following ways:

- Compliments HAMP by providing viable alternatives for borrowers who are HAMP-eligible
- Uses standard processes, documents and timeframes
- Provides financial incentives to borrowers, servicers and investors
- Requires that borrowers be fully released from future liability for the debt
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis
- Allows the borrower to receive pre-approved short sale terms prior to the property listing
- Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement

HAFA provides financial incentives as follows:

- Homeowners qualify for $3,000 (updated March 26, 2010; was previously $1,500) in Borrower Relocation Assistance after a short sale or deed-in-lieu has been completed (may classify as taxable income in some cases).

- Financial incentives for servicers participating in the program include up to $1,500 (updated March 26, 2010; was previously $1,000) servicing bonus upon completion of a short sale or deed-in-lieu.

- Financial incentives for investors include up to $2,000 (updated March 26, 2010; was previously $1,000) for those who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis.

- Lenders pay all servicing fees — homeowners have no out-of-pocket expenses.

The program was activated April 5, 2010 and sunsets on December 31, 2012. If you have any questions, feel free to contact the program directly at Support@HMPadmin.com, or 866.939.4469