Changes to HAFA Guidelines: Definitely Take a Look

On March 26, 2010, the Treasury set out to provide us with more information about the HAFA Program—Home Affordable Foreclosure Alternatives. (To see the revised government document, click here.)

As you may recall, HAFA provides incentives with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP (including HAFA) can be viewed at the following website: www.makinghomeaffordable.com/contact_servicer.html.

The HAFA Program complements HAMP by providing a viable alternative for borrowers who are HAMP eligible but unable to keep their home. This alternative uses borrower information already collected in connection with consideration of a loan modification.

One excellent feature is that the program allows borrowers to receive pre-approved short sale terms before listing the property (including the minimum acceptable net proceeds).

Another great component is that the program requires borrowers to be fully released from future liability for the first mortgage debt. (There would be no cash contribution, no promissory note, and no deficiency judgment is allowed.)

Since I have summarized the main components of the program in an earlier blog, I thought it best to provide you with a summary of the updates.

Please see the link above to review all of the changes to the HAFA program. Here are what I feel to be the most important points:

• Borrowers may NOT participate in HAMP and HAFA Programs simultaneously.
• Borrowers in bankruptcy may be considered for the HAFA Program.
• $3,000 for borrower relocation assistance
• $1,500 for servicers to cover administrative and processing costs
• Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.

While the HAFA program seems to be a work in progress, it is important to know your product—especially if you are working the distressed property market.