HAFA - Overview

HAFA is an acronym for Home Affordable Foreclosure Alternatives, a government-sponsored program that helps individuals and families who are experiencing difficulty in selling their homes. In conjunction with the Home Affordable Modification Program (HAMP), HAFA was initiated on November 30, 2009 by the U.S. Treasury Department under the Obama Administration with the goal of revitalizing the housing market.

Via the program, borrowers are provided incentives that will help them take advantage of either a short sale, whereas the borrower and the mortgage servicer agree to sell the home for less than the value of the loan; or a deed-in-lieu of foreclosure, whereas the homeowner voluntarily gives the deed of the property to the servicer.

HAFA complements HAMP as an alternative for eligible borrowers, but does not apply to loans that are affiliated with Fannie Mae or Freddie Mac. Reportedly, these organizations have plans to release their own versions of HAFA in the near future.

In simpler terms, HAFA helps people quickly sell their homes by giving them pre-approved short sales terms before listing the property. They are fully released from future liability for the first mortgage debt, and can receive $1,500 for borrower relocation assistance. Investors and servicers can also receive financial assistance through the program for administrative costs, processing fees, etc. The program sounds simple, but is actually quite complex with many guidelines and rules.

Although the program was initiated in November 2009, it officially began on Monday, April 5, 2010 and will end on Monday, December 31, 2012. Experts say that if the program is successful, it will likely be extended and the terms may be adjusted for more to qualify.

To apply for the HAFA program, homeowners should visit or call their banks to inquire about how they can participate. As always get your terms in writing, and be sure to thoroughly read and fully understand any agreements before you sign.

Why The HAFA Program Is Important

The HAFA short sale program is a very important program because it's a great alternative to foreclosures. This is much needed because of the current state of the housing market. The United States is experiencing one of the worst economic downturns of all-time, and much of it occurred because of the real estate industry. There are a record amount of houses and condos in foreclosure, and many more are expected to be filed as time goes on.

The HAFA program is important because it's sponsored by the federal government, with the common goal of helping homeowners. Utitlizing the HAFA program is much better than a foreclosure because it does not affect one’s credit report as adversely. For the same reason, it's better for a borrower to take advantage of HAFA - opposed to filing bankruptcy.

A short sale or deed-in-lieu (DIL) is a very smart move for both the lender and the borrowerbecause the home will maintain it's value better when occupied, and the borrower gets to reduce their debt load. Over time, the program should be a major influencer on how fast the housing market recovers. One-by-one, bad mortgage situations will be repaired - and the economy will slowly begin to be rebuilt

HAFA Rules, Guidelines and Qualifications

Do you know the rules and guidelines for the HAFA short sale program? Do you qualify? Unfortunately, not everyone does. To qualify, you must own a home that was purchased before the year 2009. In addition, you must be living in the home as your primary residence, and must have been previously considered for other foreclosure prevention options including loan modification.

Borrowers must also meet HAMP eligibility, but can be either delinquent or current on their mortgage payments. Even if current, the borrower must be able to demonstrate financial hardship.

Here are a few guideline questions to ask yourself to determine your eligibility:

1) Is your home your primary residence? In other words, if you have multiple residences - do you spend most of your time in this residence?

2) Is the amount you owe on your first mortgage equal to or less than $729,750? (Do not include the total of your second mortgage.)

3) Are you having ongoing financial trouble that makes it difficult for you to make your mortgage payments each month?

4) Did you get your current mortgage before January 1, 2009?

5) Is your monthly payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, etc) more than 31% of your current gross income?

If your answers to all five of these questions are "yes", then it is very likely that you qualify to receive assistance through the HAFA program. If you answered "no" to one or two questions, you may still qualify. To be sure, contact your lender's local office.

How The HAFA Short Sale Program Works

How does the HAFA program work? Well, the program is very complex. It uses the borrower’s financial and hardship information when considering loan modification.  It allows borrowers to receive pre-approved short sale terms before listing the property, which includes the minimum acceptable net proceeds.

Servicers (banks, lenders, etc) are prohibited from requiring a reduction in the real estate commission agreed on, which is up to 6 percent. Borrowers are fully released from future liability for the first mortgage debt within 10 business days from the date the servicer receives the sale proceeds, which means that no promissory note, deficiency judgement or cash contribution is allowed.

Servicers will set monthly mortgage payment during the marketing period. This payment is not to exceed 31% of the borrowers gross monthly income. Like any other loan modifications, all standard processes, documents and timeframes apply.

The program also includes several financial incentives including $1,500 to go towards the borrower's relocation cost. Servicers can receive $1,000 to help with their administrative and processing costs. Finally, investors get up to $1,000 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).

In simpler terms, the HAFA program works through the lender. They receive a financial incentive to participate, and the borrower receiveds a financial incentive to take advantage of the option. Although it sounds simple, the program is quite sophisticated and requires patience from both the servicer and the borrower.

How To Apply For HAFA

If interested in applying for the HAFA short sale program, you should first determine whether or not you meet the qualifications and guidelines . If so, you should next decide whether or not you are ready to take on the adverse effects that the program will do to your personal credit. Although the program is not as bad as a foreclosure, it will lower your credit score and will show up on your credit report. This can affect your future purchases of vehicles, homes, etc., and can affect your eligibility for low-interest credit cards and loans.

The next step would be to contact your lender, and inform them of your interest to participate. Remember that the program will not be available until after April 5, 2010. They will likely schedule an appointment for you to come in to their local office to discuss the details and terms.

After this, your application will be submitted for approval. The process can take several days, and may require additional paperwork to verify that you are experiencing financial hardships