Kirk M West's Blog

Trying to reduce the rising number of foreclosures in the U.S., the Treasury Department introduced a new federal program that makes it easier to process a short sale for people unable to keep their homes.

Home Affordable Foreclosure Alternatives (HAFA) streamlines the process for doing a short sale or deed-in-lieu of foreclosure for distressed homeowners who do not qualify for a federal home loan modification through the Home Affordable Modification Program (HAMP) or have missed consecutive payments after a modification.

The HAFA program started April 5, 2010, and ends December 31, 2012. Federal rules require servicers participating in HAMP to implement HAFA. The new program also requires borrowers to be released fully from future liabilities related to their first mortgage, including cash contributions, promissory notes and deficiency judgments.

Participation in HAFA cannot save homeowners from losing their property, but it can eliminate the effects of a foreclosure on their credit. Financial incentives for program participation include a $1,000 servicing bonus for lenders and a $1,500 relocation bonus for displaced homeowners. Lenders of other subordinate liens (e.g., HELOCs) may be allowed to keep a limited portion of the proceeds (up to $3,000 each) of a short sale, with the first-lien lender’s approval.

HAFA is designed for homeowners who have applied to HAMP for assistance but have had no success with their loan modification program. To participate in HAFA, homeowners must still meet HAMP’s eligibility criteria: home is principal residence; first-lien mortgage is in delinquency or default is reasonably foreseeable; loan closed before January 1, 2009; unpaid balance is under $729,750; and the mortgage payment is over 31% of gross income.

Here is the issue..... much like HAMP the program is seems good at the outset.  However, now that we are just shy of 2 months into the program there are hiccups.  First, many lenders don't have staff to handle the short sales to begin with and have not adopted the program just yet.  Second, the program will be taking, on average, an additional 2 to 4 months longer than the already 6 month long short sale process.  This is because the HAFA program needs approval from the government run program.  Lastly, the "qualifying" has been the #1 issue for the HAMP modification program and I expect it to be the same here. 

Keep in mind, if you are planning on selling your home, call me first. There are so many things to consider before making that decision.  Did you know there are 3 other short sale programs as well?