HAFA is the acronym for the Home Affordable Foreclosure Alternatives Program. This program was initially launched by the Treasury Department on 14th May 2009 and consists of guidelines and forms that make a total of 43 pages.
The HAFA program is intended to assist homeowners, referred to as borrowers in the document, faced with an imminent loss of their homes thanks to the Home Affordable Modification Program (HAMP). Simply put, the HAFA program is meant to make the use of the deed-in-lieu of foreclosure and short sale instruments easier and more straightforward.
To prevent foreclosure using the HAFA program, borrowers are required to either complete a deed-in-lieu of foreclosure i.e. DIL, or alternatively complete a short sale. The HAFA program forms that were released on 30th November 2009 are not applicable to persons whose loans are guaranteed or owned by Freddie Mac or Fannie Mae. These two institutions will issue their own HAFA program forms and updates – details of which can be checked for via www.realtor.org/shortsales. Borrowers who had obtained VA or FHA loans cannot use the HAFA program.
The Finer Aspects of the HAFA Program
- The HAFA program is complementary to the HAMP program in that the borrowers, actually eligible for HAMP but unable to keep their homes, are presented with a useful alternative.
- The program will make use of a borrower’s financial and hardship information that was already submitted for the HAMP. It will also use all the standardized documentation, processes and deadlines/timeframes.
- Under HAFA, a borrower will be privy to all the pre-approved terms of a short sale prior to the listing of the property.
- A borrower will be protected from any action by the servicers that is aimed at reducing the agreed upon real estate commission indicated in the listing agreement.
- A borrower will be fully free from future liabilities i.e. that of the initial mortgage debt and any debt accrued upon the subordinate lien holder’s receipt of a HAFA incentive.
- For short sales, the HAFA program allows for a total of $3000 in proceeds from the sum of which is to be doled out to subordinate lien holders according to a 1-for-3 matching basis. $1500 is meant for borrower relocation assistance, $1000 for administrative and processing costs, and $1000 match for investors.
Eligibility for the HAFA Program
Before a borrower can apply for the HAFA program he or she must have fulfilled the basic HAMP criteria, i.e:
- Have a principal residence
- That his/her initial lien was undertaken prior to 2009
- That his/her mortgage default or delinquency is logically foreseeable
- Have an unpaid principal balance that is not in excess of $729,750. This figure is higher for persons with 2-4 unit dwellings
- That his/her total monthly payments are in excess of 31% of the gross income
The Loan Evaluations Steps to Ascertain HAFA Program Candidacy
- A borrower will first solicit for the HAFA program and await a response
- An assessment of the expected recovery will be made. This will basically involve a recovery comparison between the foreclosure and disposition option and the HAFA short sale or deed-in-lieu of foreclosure.
- A reference to the borrower’s HAMP financial information will be made, and in some instances some updated documentation may be required.
- A valuation of the property will be performed followed by a review of the title.
- The borrower will be informed upon the unavailability of the short sale or DIL.
Further Details About the HAFA Program
As a borrower you can neither list the property nor sell it to anyone with whom you have a close relationship personally or business-wise. The transaction must retain an ‘arms-length’ description.
- In some instances the forgiven debt may be regarded as income, and subsequently be used for tax purposes; this taxation may also be inapplicable according to a law whose expiry is set for the end of 2012. In the event that the forgiven debt is in excess of the cost of acquiring, constructing and rehabilitating the principal residence, the sum of forgiven debt will not be taxed. Better advice on this should be sought from a tax adviser.
- The servicer will make it known to the credit reporting agencies that the borrower’s mortgage was resolved at an amount below the total payment owed. This will impact negatively on the borrower’s credit score.
- Property buyers are prohibited from re-conveyancing within 90 days of closing.
- All short sale agreements entered must as a necessity be undertaken and returned to the concerned servicer on or before 31st December 2012.
Further referencing can be done on the document provided via Realtor.Org, and FAQs on the HAFA program are available at Feedag.Com.
Insightful resource links on the HAFA program are available via WhatisHafa.Org.