Glossary of Distressed Real Estate – H
HAFA – Home Affordable Foreclosure Alternatives. Part of the Making Home Affordable Program that gives servicer guidance for expediting certain pre-foreclosure events such as short sales or deeds-in-lieu of foreclosure. It is reserved for borrowers who did not qualify for, or were unsuccessful, under a HAMP modification. [See “HAMP” below.]
HAMP – Home Affordable Modification Program. This is a federal home loan modification program under the umbrella Making Home Affordable Program. HAMP is designed to facilitate and implement practices and procedures in the modification of home loans for owners of distressed properties.
HARP – This is a loan refinance program under the umbrella Making Home Affordable Program. It is designed to facilitate and implement practices and procedures in the refinancing of home loans for owners of distressed properties. Revised HARP guidelines, “HARP 2.0,” have loosened LTV requirements such that lenders are permitted to make loans for homes up to 125% of their appraised value.
Hard Money Loans – Loans made at high interest rates to borrowers who may have credit issues or other constraints that make it difficult or impossible for them to obtain a conventional or federally guaranteed loan. Hard money loans focus less on the buyer’s credit and more on the value of the security. They are usually processed and made within a short period of time.
Hazard Insurance – Insurance designed to cover an insured’s loss such as fire, wind or other casualties. Sometimes referred to as “casualty insurance.” Lenders usually require, as a condition to making a loan, that the borrower/homeowner maintain hazard insurance naming the lender as an additional insured to the extent of the lender’s remaining interest under the mortgage or trust deed.
Home Equity Line of Credit (“HELOC”) – A line of credit loan available up to a certain limit and secured by the borrower’s equity in their property. There is generally no restriction on the use of the proceeds, and the homeowner can draw the funds out as he or she wishes, with repayment of principal and interest tied to the sums drawn out. Interest rates can fluctuate based upon variations in some third-party index. HELOCs permitted some homeowners to live beyond their incomes, and due to massive defaults of these loans in 2008 and thereafter, are much more tightly controlled than in the past. HELOCs were typically in a second or third position behind superior loans, so when the borrower defaulted on a superior loan, foreclosure wiped out the HELOCs security position. Also, when housing values collapsed, HELOC lenders found their loans had no security to attach to.
Home Equity Loan – Any loan secured by the borrower’s equity in their home.
Homeowners Association (“HOA”) or Unit Owner’s Association – An association of owners of property within a particular development such as condominiums [sometimes called a “Unit Owner’s Association”], townhome communities, or planned communities and subdivisions. HOA’s are required to be formed under many state laws with a primary purpose to oversee, manage and maintain common areas, enforce violations of the Conditions, Covenants and Restrictions or “CC&Rs,” and collect association dues.
Homeowner Insurance – Hazard insurance [see above] covering losses due to certain listed casualties or risks such as fire, wind, etc. Normally requires the occurrence of a spontaneous “event” and does not insure against losses due to mold, mildew, termites, or other casualty that results in loss to the homeowner over a gradual period of time. Unless required by the lender, homeowner insurance does not normally include damage resulting from floods. Homeowner insurance can and should be obtained with additional coverage against [non-auto related] liabilities claimed against the homeowner for negligence or other acts.
Homestead Exemption – A “homestead” refers to the primary home in which one actually lives. Most states set a figure – in Oregon it is $40,000 for a single debtor and $50,000 for joint debtors – that is “exempt” from execution in the event of a forced sale of a home by a judgment creditor. This does not mean the home cannot be sold, but merely that a portion of the debtor(s’) equity up to the permitted exemption amount may be retained from the sale proceeds. [See, ORS 18.395]
Housing and Urban Development (“HUD”) – A federal agency whose mission it is “…to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships–particularly with faith-based and community organizations that leverage resources and improve HUD’s ability to be effective on the community level.”
HUD-1 Settlement Statement – The document required to be completed and given to buyers and sellers at the time of closing. Also known as the “settlement sheet” or “closing statement.” It itemizes all costs related to the closing of the transaction, such as [on the buyer’s closing statement] the costs related to the loan, points, fees, prorated taxes, etc. On the seller’s closing statement the HUD-1 discloses the funds received and disbursed, such as real estate commissions, escrow fees, title insurance premium [if paid by the seller as is customary in Oregon], etc. The HUD-1 form was substantially revised effective January 1, 2010 and replaces all prior such forms. It now shows buyers the actual loan costs compared with those disclosed on the Good Faith Estimate or “GFE”.
Hybrid Loans – Any loan with terms that combine fixed rates and adjustable rates. Typically, they commence with a low fixed rate and within a three to ten year period, change to an adjustable rate. While the initial terms can seem attractive, they need to be closely reviewed before commitment in order to evaluate their long term affordability.