Home Affordable Foreclosure Alternatives Program (“HAFA”)
There may be some good news for people at risk for foreclosure. (Note, I said “may be”.) The Obama administration has created a program to speed up short sales, deeds-in-lieu transactions, and other loan modification options to help distressed homeowners.
On November 30, 2009 the administration released the Home Affordable Foreclosure Alternatives Program, (“HAFA”) which simplifies procedures and offers financial incentives for completing short sales. (A “short sale” occurs when a lender agrees to accept less than the amount owed in exchange for releasing its mortgage.)
The new federal guidelines seek to eliminate many of the barriers that have often derailed short sales. Banks will have a time limit to approve an offer, the claims of subordinate lenders (2nd mortgage holders) have been capped, and borrowers will be released from the remaining debt—at least on first mortgages.
There are now financial incentives for approving short sales and deed-in-lieu transactions, including a payment of $1000 to the mortgage servicer and other incentives. In addition, the borrower can receive $1500 for moving expenses.
Many realtors, buyers, and sellers have long been frustrated by the red tape of a short sale because of the exhausting negotiations involved. It’s hard enough to reach an office consensus on what toppings to put on a pizza, but try to get a buyer, seller, lender, and a mortgage insurance company to agree is to the terms of a deal is almost impossible—at least in a reasonable amount of time. Lenders often complain about the sales price and distribution of proceeds. They also squabble over whether the borrower can be responsible for the remaining debt. And that’s if you are even lucky enough to get a response from the lender.
The good news for realtors is that mortgage servicers may not reduce the commissions paid to realtors. This is welcome news to real estate agents and good news for homeowners looking to do a short sale.
With the new rules in place, mortgage servicers have ten days to consent to a request for a short sale, and upon completion of the sale, the borrower must be fully released from the mortgage note. That means no more personal liability following the seller. This is excellent news for borrowers. Before the new rules, the mortgage servicer could accept less for the house, then sue the former homeowner for the rest of the money owed.
Remember, these new guidelines apply only to lenders subject to federal oversight. If your bank is state chartered, then they will not be held to these rules, but most of the big lenders will.
Wondering if your home is eligible? According to the Home Affordability Modification Program, a loan meets the basic eligibility criteria if all of the following conditions are met:
- The property is the borrower’s principal residence;
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,750; and
- The borrower’s total monthly mortgage payment (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income.
The full set of guidelines can be found here.
While I hope this program will actually help to streamline short sales or other loan modifications, I’m highly skeptical. Like all other federal programs dealing with mortgage modification, the HAMP program and the HAFA initiatives are voluntary. In addition, HAMP and HAFA don’t apply to laons guaranteed by Fannie Mae or Freddie Mac–about half of all mortgages are guaranteed by these two giants. (However, Fannie and Freddie are to issue their own progam guidelines in the near future.)
The deadline for banks to enroll in this program is April 1, 2010. The program takes effect on April 5, 2010 and terminates on December 31, 2012. Many believe that since lenders have only ten days to respond to a short sale request, lenders will decline to participate. Here’s a list of financial institutions participating in HAFA.
Let’s hope this added feature to the HAMP program is effective. At this point, HAMP has been widely regarded as a failure.
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Comments
I am not aware of the program applying to investment properties, but that doesn’t mean you can’t attempt some sort of modification on the investment properties. You should consult a lawyer in your area for this.
[...] more from Russ DeMott on this subject at his site Charleston Real Estate Blog. Posted in Short Sale Cancel [...]
[...] than slow financial suicide. And sometimes it’s just not possible. Perhaps HAMP (“Home Affordable Modification Program“) won’t work for you, or maybe you have an investment property, like a lot in a [...]
Russ,
We’re dealing with the HAFA program here in the Hilton Head Real Estate market….what has your experience been so far with the program?
I works about a poorly as the old program. Lenders are disorganized and modifications are rarely approved.
What if your loan is on an investment property. It meets all the criteria except the first one. Are the banks going to honor this. Bank of America and Wells fargo are the 2 banks I have loans with. I have 4 properties that are seriously underwater and are now in default.
Thanks
Eric