Today, I participated in another conference call on the topic of short sales and the HAFA program. One of the questions about HAFA is why are Fannie Mae and Freddie Mac loans not covered by HAFA? The answer is that these entities will be coming out soon with similar programs of their own.
Tonight, I heard a newscast about Congressional hearings where banks "made no promises" to participate in mortgage modification programs designed to keep people in their homes, such as HAMP. In contrast, for those who need to sell their homes and move for a job or major life change, there are built-in incentives even without HAFA for banks to approve short sales rather than let a property go to foreclosure. That's why I've been able to complete several short sales for homeowners, including one that was approved today. HAFA should make the short sale process even better, or so we hope.
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Here is my original post about HAFA from April 7:
There has been talk of the new federal program to put a dent in the millions of foreclosures happening across the country, but now, in April, it is finally in effect. The program is called “HAFA” (the government loves acronyms), which stands for Home Affordable Foreclosure Alternatives. On Tuesday, I participated in a video conference about this new program, presented by the Certified Distressed Property Institute with special guest Danielle Kutch, Homeowner Policy Analyst of the U.S. Treasury Department.
Some media outlets have referred to HAFA as “cash for keys,” but that’s really not what it is. The plan is to find a buyer for homes at current market rates and have the government provide incentives for the lender to forgive the balance due on the sellers’ loans, and a cash incentive to the homeowner at closing to encourage homeowners to participate rather than abandon their homes. This recognizes the reality that selling a home is hard work. Sometimes that cash needs to be used for incidental selling expenses – removing snow so the home can be shown, paying for a plumbing leak that happened while waiting for the sale. In other words, it’s not cash that a seller is likely to use to go to Disney World.
The new HAFA program comes on the heels of a less than successful mortgage modification program that was introduced by the government in March 2009 – the Home Affordable Modification Program (“HAMP”). HAMP helps homeowners whose mortgage payments were only slightly out of reach (specifically more than 31% of their gross income) by modifying their payments to fit within their income. Unfortunately, many homeowners could not make the payments required even when their mortgage obligations were modified. Enter HAFA:
The newest government program is designed to expedite foreclosure avoidance options for homeowners, specifically short sales and deeds-in-lieu of foreclosure. To qualify for HAFA, you need to (1) be delinquent on your mortgage or be in imminent risk of default, (2) be living in the property as your primary residence or have been forced to move to find a job, (3) have a mortgage originated before January 1, 2009, (4) have an unpaid principal balance no greater than $729,750 (how do they come up with these numbers?), and (5) have total monthly mortgage payments exceeding 31% of your gross monthly income. While HAFA is not a solution for everyone, it can potentially save millions of homeowners from the financially devastating event of foreclosure – and save neighborhoods from the blight of abandoned and vacant homes.
Why are lenders participating in HAFA? HAFA offers lenders an incentive of up to $6000 for successfully processed short sales or deeds-in-lieu of foreclosure. The lenders are not permitted to charge the homeowners any processing fees and this incentive is given to them in exchange for that limitation. Some lenders may choose not to participate. Check this list to see if your lender is participating in HAFA. Even without the government incentive, when a lender is convinced that a homeowner cannot pay the mortgage, the lender will want to salvage as much of their investment as possible and will almost always agree to short sale if one is presented. Lenders almost always lose more money in a foreclosure than in a short-sale or a deed-in-lieu of foreclosure. The HAFA innovation is to require lenders to determine what they will accept in a short-sale offer up-front so that the lender cannot abruptly change what it wants after a buyer presents an offer.
HAFA requires that the home be listed with a Realtor® and that a short sale attempt be made before a request for a deed-in-lieu of foreclosure is approved. The agent's fees are paid as a closing cost netted from proceeds that accrue to the seller's lender at closing. The seller is given a $3000 cash incentive payable at closing to stay in the home (or maintain it, if a job transfer has required a move) until the short sale can be completed. HAFA applies only to mortgages that are first liens, but second liens can be negotiated as part of the process.
Time will tell if the HAFA program can speed the notoriously long short-sale process of transitioning homes from underwater sellers to willing buyers. Mortgage companies have been staffing up and procedures are improving, but short sales are definitely not short. If you think a short sale is in your future, contact me to learn more about how I can help you through the short sale process. | 
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