Which loans are eligible in the HAFA-Home Affordable Foreclosure Alternative Program?
The Home Affordable Foreclosure Alternative Program, provides short sales guidelines for loans not owned or guaranteed by Fannie Mae or Freddie Mac. It also addresses deeds in lieu of foreclosure, if a short sale is not a viable alternative.
The program is directed to lenders and servicers participating in the Home Affordable Modification Program, HAMP. The HAFA Program is meant to help borrowers who either do not qualify for the loan modification or who have been unable to keep up with their payments under such a plan. The program applies to the large volume of so called "risky" loans that were issued outside of the Fannie Mae and Freddie Mac guidelines during the housing boom, such as zero down loans, ARM's, and Alt-A mortgages that didn't require extensive income documentation. A major time saving feature of the HAFA Program is that the financial information already gathered in the loan modification application will be used to determine eligibility for the short sale program.
The HAFA guidelines are voluntary, but major banks and servicers as well as dozens of smaller lenders, are expected to participate. To participate, a mortgage servicer must have opted in to the government's Home Affordable Modification Program by the end of last year. The guidelines also include standardized forms, procedures, and timelines, and allow the borrow to receive pre approved short sale terms prior to the property listing. This should help the short sale process overall, giving buyers a better assurance that the lender will accept an offer in a reasonable time frame as well.
Prior to approving a borrower to participate in a HAFA short sale, the servicer must determine the minimum acceptable net proceeds that the investor will accept. Once the borrower has been approved for the short sale program, the net requirement cannot be increased for at least 120 days. The buyer's approval is expressed in a standardized Short Sale Agreement (SSA), and must be good for at least 120 days. No foreclosure may take place while this agreement is in place. The SSA requires that the property be listed and actively marketed with a "licensed real estate professional who is regularly doing business in the community where the property is located."
The borrower has to submit a request for approval of short sale, (RASS), within three business day of an executed purchase agreement. This is also a standard form. Within 10 days of receipt of the RASS, the servicer must approve or disapprove it. The approval cannot be contingent on a lowering of the real estate commission that had been agreed to. Also, the approval cannot require a closing of less than 45 days. No foreclosure may take place during the period approved for closing.
The following conditions must also be met:
- The property is the borrower's principal residence.
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009.
- The mortgage is delinquent or default is reasonably foreseeable
- The current unpaid principal balance is equal to or less than $729,750 (higher if the property is 2-4 units)
- The borrower's total monthly mortgage payment exceeds 31% of the borrower's gross income.
How the rules are going to help in the process:
Lenders will have financial incentives to get these transactions moving. Servicers will get $1,500 to cover admistrative and processing costs. Subordinate lien holders (2nd Mortgages etc.) get up to $2,000 for investors who allow up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one for three matching basis, up to 6% of the unpaid principal balance of each subordinate loan. In addition, borrowers receive $3,000 to defray their moving expenses, paid at closing. Also, the HAFA rules require that borrowers be fully released from future liability for the debt. Also, subordinate lien holders that receive HAFA incentives must agree not to pursue deficiency judgements.
HAFA becomes effective on April 5, 2010. Check with your lender or mortgage servicer to see if they are participating. This program will not cover all loans, but will cover a lot of them.