HAFA – Home Affordable Foreclosure Alternatives Program

HAFA, an acronym for Home Affordable Foreclosure Alternatives sets some wonderful goals set to begin on April 5th, 2010. It is one of the most important updates to the short sale process mandated by the Federal Governement thus far. To summarize from the Fannie Mae administered website:

HAFA simplifies and streamlines the short sale and DIL [Deed in Lieu] process by providing a standard process flow, minimum performance time frames and standard documentation.

The entire document can be read here.

Some of the important points to consider if you need a short sale and think that this program may help you:

• A loan must be HAMP (www.makinghomeaffordable.com) eligible and meet the other requirements to be eligible for incentive compensation under HAFA.
• The program begins April 5, 2010
• Borrowers may be accepted into HAFA if a Short Sale Agreement is fully-executed by the borrower and received by the servicer on or before December 31, 2012.
• Borrowers must first be considered for a loan modification before being given a short sale through HAFA.

Think of HAFA as an Organized “Foreclosure Alternative”

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage. The short sale must be an arm’s length transaction with the net sale proceeds (after deductions for reasonable and customary selling costs) being applied to a discounted (“short”) mortgage payoff acceptable to the servicer. The servicer accepts the short payoff in full satisfaction of the total amount due on the first mortgage.

It should be noted that each loan servicer will have some of its own guidelines to determine whether or not to accept a short sale:

Each participating servicer must develop a written policy, consistent with investor guidelines, that describes the basis on which the servicer will offer the HAFA program to borrowers. This policy may incorporate such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions and borrower motivation and cooperation.

Finally, there are some specific guidelines that must be met to qualify under HAFA:

• 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 exceeds 31 percent of the borrower’s gross income.

Some streamlining will take place because the information obtained for the potential loan modification will be used to evaluate the short sale.

Other important notes on HAFA:

• Prior to short sale approval, a buyer will know a minimum net proceeds acceptable to the lender (servicer).
• “reasonable and customary” transaction costs that are customary for your community must be considered.
• A fixed termination date not less than 120 calendar days from the effective date of the SSA (“Effective Date”). The Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months, in accordance with the requirements of the investor.
• A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
• Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
• The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
• The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction.
• A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
• Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
• An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $1,500, which will be deducted from the gross sale proceeds at closing.
• Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens.

There really is a lot more to this and if you need to know, please read the full document here. What you should know is that this will streamline the process and may expedite the process. Let’s get it rolled out before we tout this as the short sale fix we hope that it will be.

Regardless of how the process unfolds, it will remain a complicated transaction and one that you should be very careful in the selection of your real estate professional. I suggest using the services of a CDPE designated real estate agent. Those of us who have earned the CDPE designation have additional training in the process.