H.A.F.A.

On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA), which will help homeowners who are unable to retain their home under the foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL).  HAFA is designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure by improving the process.  Specifically, HAFA will:

• Complement HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Use borrower financial and hardship information already collected in connection with consideration of a loan modification under HAMP.
• Allow borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibit the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
• Require borrowers to be fully released from future liability for the first mortgage debt and if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
• Use standard processes, documents, and timeframes/deadlines.
• Provide financial incentives: $1,500 for borrower relocation assistance; $1,000 for services to cover administrative and processing costs; and up to $1,000 match 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; up to 3% of the unpaid principal balance of each subordinate loan).

NAFA is a complex program with 43 pages of guidelines and forms.  To help everyone better understand the process, below are some frequently asked questions that address the basics.

For more details on HAFA, visit www.realtor.org/shortsales for links to the guidance, many additional FAQ’s and much more information about short sales.

What is HAFA?

Initially announced on May 14, 2009, with guidance and standard forms issued on November 30, 2009, the program will help owners (referred to below as borrowers) who are unable to retain their home under the Home Affordable Modification Program (HAMP).  A borrower (the current owner) may be able to avoid a foreclosure by completing a short sale or a deed-in-lieu of foreclosure (DIL) under HAFA.  The guidance and forms released on November 30 do not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac.  Those enterprises will issue their own HAFA guidance and forms.

Who is eligible for HAFA?

The borrower must meet the basic eligibility criteria for HAMP:

• Principal residence.
• First lien originated before 2009.
• Mortgage delinquent or default is reasonably foreseeable.
• Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
• Borrower’s total monthly payment exceeds 31% of gross income.