Monday, April 5, 2010

Home Affordable Foreclosure Alternatives (HAFA)

What is HAFA?
HAFA is a government-subsidized Home Affordable Foreclosure Alternatives program for distressed homeowners to sell their homes to avoid foreclosure, even if the sales price is not enough to pay off their existing mortgage loans. Under HAFA, a participating lender will pre-approve the terms of a short sale and give the borrower at least 4 months to market and sell the property using a licensed real estate professional.

The eligibility requirements for a HAFA short sale include the following: • Property must be borrower’s principal residence; • Loan must be a first trust deed originated before 2009; • Loan must be delinquent or default must be reasonably foreseeable; • Current unpaid principal balance must be $729,750 or less for single-family home (or higher amounts for 2-to-4 units); and • Borrower must be eligible for, but unable to complete, a loan modification under the Home Affordable Modification Program (HAMP).

Financial Incentives
The government incentives under HAFA are as follows: • $1,500 to borrower for relocation expenses; • $1,000 to servicer for each successful short sale; and$1 to investor for every $2 paid to extinguish junior liens, up to $1,000 maximum.

Effective Dates
April 5, 2010 to Dec. 31, 2012.

HAFA Procedures
The general standardized procedures for HAFA short sales are as follows:Step 1: Lender evaluates borrower for a loan modification under HAMP. Step 2: Lender evaluates borrower unable to complete HAMP modification for short sale. Step 3: Lender issues Short Sale Agreement (HAFA SSA). Step 4: Borrower lists the property for sale using a licensed real estate agent. Step 5: Borrower and agent market and sell the property. Step 6: Borrower submits to lender a Request for Approval of Short Sale (RASS). Step 7: Lender approves RASS within 10 business days. Step 8: Sale closes escrow.

Lender's Evaluation
Each participating lender will have its own written policy for approving or rejecting a HAFA short sale, based on factors such as the severity of the loss, market conditions, the borrower’s motivation and cooperation, property valuation, and title review.

Short Sale Agreement (HAFA SSA)
The Short Sale Agreement (HAFA SSA) will include, among other things, the following: • Either a list price or net proceeds acceptable to the lender; • An agreement to fully release borrower from all liability for repayment of the loan; • An agreement not to complete a foreclosure sale if borrower complies with SSA; • Amount of acceptable closing costs and up to 6% real estate commission. • Notice that the sale must be an arm’s length transaction; and • Notice that the buyer must agree not to resell the property within 90 days of closing.

Tax, Credit, and Other Consequences
A HAFA short sale may have serious tax, credit, financial, legal, and other consequences. A homeowner is strongly encouraged to seek the advice of a qualified professional regarding these consequences.

Participating Lenders
A list of lenders participating in the HAMP program is available at Fannie Mae and Freddie Mac have their own HAFA guidelines for their loans.

More Information
Supplemental Directive 09-09 dated Nov. 30, 2009 available at

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