This recent federal program was created in order to provide alternatives solutions following an unsuccessful loan modification. It purportedly1 offers financial incentives for sellers and lender in connection with short sales and deeds in lieu of foreclosure. Both of these two alternatives to loan modification are an acknowledgment that: (a) The loan modification programs are not for everyone; and (b) The loan modification process can be painfully slow and frustrating. Accordingly, one of the requirements is that before being eligible for HAFA one must also have been eligible for modification under the federal modification program known as “HAMP.”
The loan servicers2, that is, those entities who agreed to participate in HAMP, are ostensibly required to participate in and comply with HAMP. A list of servicers participating in HAMP (including HAFA) is available at:http://www.makinghomeaffordable.com.
Here are some HAFA program highlights:
- It acts as an alternative for borrowers who are unable to keep their home after failing to successfully complete the HAMP program.
- It offers the following financial incentives: $3,000 for borrower relocation; $1,500 for servicer administrative costs; up to $2,000 for investors (that is, those who purchased the loan package that included this particular loan) if they agree to permit the surbordinate lien holder to collect up to $6,000 in short sale proceeds. (Note: This is on a $1.00 to $3.00 matching basis. For example, if there was a single second mortgagee owed $18,000, they would get the maximum of $6,000. If there were two subordinate mortgages, they would allocate the $6,000 on a 1:3 ratio between both of them.)
- Borrowers may be “pre-approved” before entering into a short sale. That is, upon analysis of the borrower’s financial and value of the property, HAFA will determine in advance the minimal net proceeds permissible in a future short sale.
- The program prohibits promissory note liability after the closing of the short sale. (Note: This restriction is limited to liability under the first trust deed; not necessarily the second or third.)
- HAFA utilizes much of the borrower’s financial information provided to HAMP in determining qualification for HAFA.
- It requires that participating servicers follow their own predetermined investor guidelines. These guidelines may contain policies regarding the potential loss severity, market conditions, upcoming foreclosure, etc.
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Footnotes
- I use “purportedly” because I have not heard any anecdotal evidence suggesting that any HAFA programs have successfully achieved anything. Many people are reporting it as a helpful solution, but there is little or no evidence that it has ever been successfully implemented.
- The “servicer” may or may not be the bank the borrower initially obtained their loan through Sometimes the obligation to “service” the loan, that is, collect payments, monitor tax and insurance impounds, and generally be the “point person” with the borrower, has been turned over to a third party company. The information on the borrower’s payment coupon is the best place to start in identifying the servicer.
