February 16th, 2010 12:04 PM by Dave Gubler
What Is HAFA ?
The government's Home Affordable Foreclosure Alternatives program, or HAFA as it is commonly known may provide you with some relief. There are some hoops to jump through but working with an agent that understands the details and the process will ensure that you have an optimal chance for success. (There are 43 pages of guidelines associated with this program so please choose your real estate agent wisely!)
The three main benefits to you, the homeowner, are: (With respect to a Short Sale)
1. A formal timeframe to market and sell your home during which a foreclosure sale cannot occur. This, in my mind, is the main benefit. It will take much of the uncertainty and fear of foreclosure away from homeowners that are financially distressed and make it very probable that they are able to remain in their home longer than they otherwise would be able to.
2. A monetary incentive to assist you with relocation expenses. Although this is small, presently set at $1,500.00, it will help with the cost of relocating.
3. Releases you from any future liability on the debt. This benefit has the most long-term benefit. It eliminates the lender/services ability to secure a deficiency judgment or promissary note on the loss.
HAFA is an alternative to the Home Affordable Modification Program (otherwise known as HAMP). To be eligible for HAFA the following criteria must initially be met:
Your lender/servicer must be participating in HAMP & HAFA: This can easily be established. You can look up whether your lender/servicer is participating in the government programs by following this link:
You must be HAMP eligible: What does this mean? It is fairly simple. All of the following must be true: A) The home must be your primary residence, B) Your mortgage must have been originated prior to January 1, 2009, C) The amount you owe on your 1st mortgage must be equal to or less than $729,750.00 (For a one-unit property), D) Your current monthly mortgage payment exceeds 31% if your gross income.
AND ONE OF THE FOLLOWING MUST APPLY TO YOU: (Your lender/servicer is required to consider you for HAFA if the two stipulations above and one of the stipulations below are met)
1. You do not qualify for a trial period plan: This is a bit trickier. Participating lenders/servicers have to analyze your further eligibility. The goal of HAMP is to provide a borrower with a loan payment (Principal, Interest, Taxes, Insurance, and HOA) of 31% of their gross income. This is the part that everyone knows about and it sounds pretty good (for most people)! Unfortunately the lender has an out. The bank is required to perform a Net Present Value Test (NPV Test) on each potential HAMP candidate. The long and the short of the NPV Test is this: If the bank will make more money by foreclosing than they will by modifying your loan (payment to 31% of gross income) then the bank is not required to offer you the loan modification. This is where many potential loan modifications via HAMP are stopped. Quite simply the modifications the bank would have to make (rate reduction, term extension, and principal forbearance) would make it more cost effective to foreclose. Please feel free to contact me regarding how the NPV Test is performed and what the components of it are.
2. You do not successfully complete a Trial Period Plan: This is fairly straight-forward. If you are offered a HAMP Trial Period Plan and reject it; you do not provide the correct & complete documentation required to participate in the plan offered; you do not make all payments during the course of the Trial Period Plan.
3. You miss at least two consecutive payments during a HAMP modification: Many people are unclear regarding this item. If you have completed the Trial Period Plan and entered in to the final loan modification stage of HAMP but you miss two consecutive payments on the modified loan then you are HAFA eligible.
4. You request a Short Sale: You have determined that you must move and you meet the first two criteria mentioned (Lender is participating in HAMP/HAFA, and you are HAMP eligible).
Although the HAFA process can be complex it can provide benefits to you that were not available previously. To participate in HAFA you must utilize a licensed real estate agent. For your own benefit make sure that you select an experienced short sale agent/negotiator. Please contact me directly at 1-800-622-6720 if you would like to or need to consider a short sale.
Dave Gubler #01274644