About HAFA
HAFA is a program primarily designed for homeowners who are unable to stay in their home even with a loan modification under the Home Affordable Modification Program (HAMP). Under HAFA, homeowners may be able to avoid a foreclosure by selling the home as a “short sale”(where the value of the home is less than the remaining amount of the mortgage) or by transferring title to the lender through a process called a “deed-in lieu of foreclosure.”
HAFA:
•Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected under HAMP.
• Allows borrowers to receive preapproved short sales terms before listing the property (including he minimum acceptable net proceeds and acceptable closing costs).
• Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holders receive an incentive under HAFA, those debts as well (no cash contribution, promissory note or deficiency judgment is allowed).
•Uses a standard process, uniform documents and deadlines.
• Provides financial incentives: $3,000 borrower relocation assistance; $1,500 for mortgage servicers to cover administrative and processing costs; and up to a $2,000 match for mortgage investors for allowing a total up $6,000 in short sale proceeds to be distributed to subordinate lien holders (up to 6 percent of the remaining balance of each junior lien).
•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.
•The program sunsets on December 31st, 2012
FAQs
HAFA is a complex program with nearly 50 pages of guidelines and forms. To help you better understand the process, NAR has prepared some frequently asked questions that address the basics. For more information on HAFA and more detailed NAR FAQs, please visit www.Realtor.org/shortsales
Who is eligible for HAFA?
The borrower must meet the basic eligibility criteria for HAMP:
•Principal residence (including certain vacant properties for borrowers who recently moved at least 100miles for employment and meet program requirements)
•First lien originated before 2009
•Mortgage delinquency or default is reasonably foreseeable
•Unpaid principal balance no more than $729,750 (higher limits for two-to-four-unit dwellings)
• Borrower’s total monthly payment exceeds 31 percent of gross income
How is the program being implemented?
Supplemental Directive 09-09 (revised March 26,2010) gives servicers guidance for carrying out the program. Check www.realtor.org/shortsales for future updates.
A Short Sale Agreement (SSA) will be sent by the servicer to the borrower after determining the borrower is interested in, and eligible for, a short sale and the property qualifies. It informs the borrower how the program works and the conditions that apply.
After the borrower contracts to sell the property, the borrower submits a Request for approval of Short Sale (RASS) to the servicer within three business days for approval. If the borrower already has
An executed sales contract and asks the servicer to approve it before an SSA is executed, the Alternative RASS is used instead. The servicer must still consider the borrower for a loan modification.
What are the steps for evaluating a loan to see if it is a candidate for HAFA?
1.Borrower solicitation and response
2.Asses expected recovery through foreclosure and disposition compared to a HAFA short sale or deed-in-lieu of foreclosure
3.Use of borrower financial information from HAMP
4.Property Evaluation
5.Review Title
6.Borrower notice if short sale or DIL not available (to borrowers who have expressed interest in HAFA)
What are the HAFA rules regarding real estate commissions?
•The servicer specifies the amount of commission in the Short Sale Agreement(SSA) as a “reasonable and customary” closing cost. The borrower and the prospective real estate broker may negotiate with the servicer on the terms of the SSA, including the commission.
• There is a different rule if the borrower submits an executed sales contract to the servicer for approval before a SSA is executed. In that case, the sale contract is submitted to the servicer with an Alternative Request for Approval of Short Sale. The amount of the commission in that case is the amount negotiated in the listing agreement, not to exceed 6 percent.
• Neither buyers nor sellers may earn a commission in connection with the short sale, even if they are licensed real estate brokers or agents. They may not have any side deals to receive a commission indirectly.
What else should I know?
•The deal must be “arms length”. Borrowers can’t list the property or sell it to a relative or anyone else with whom they have a close personal or business relationship.
• The amount of debt forgiven might be treated as income for tax purposes. Under a law expiring at the end 2012, however, forgiven debt will not be taxed if the amount does not exceed the debt that was used for acquisition, construction or rehabilitation of a principal residence. Check with a tax advisor or the IRS.
• The servicer will report to the credit reporting agencies that the mortgage was settled for less than full payment, which may hurt credit scores.
• Buyers may not reconvey the property for 90 days (no “flipping”).
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Chino Hills LEARN MORE ABOUT HAFA PROGRAM - HOME AFFORDABLE FORECLOSURE ALTERNATIVES
