With foreclosure rates at all time highs, economic difficulties continue to pose challenges. Federal initiatives to help troubled homeowners such as HAMP (home affordable modification program) are performing well below expectations. Reasons cited are varied. About 750,000 homes are under trial modification with HAMP. But only a small percentage of these can receive permanent change. Short Sells and Deed in Lieu options countering foreclosure are available but with cumbersome paperwork and long waiting times.
A program to complement and increase the scope of HAMP (called the home affordable foreclosure alternatives) program HAFA has been launched. Powered with cash incentives for all and driven by the same objective of helping homeowners avoid foreclosure, it offers a streamlined and simplified procedure for Short Sell and Deed In Lieu as viable options. The program provides alternatives and one does not have to meet the eligibility requirements. This HAFA overview is for those looking to avoid foreclosure using this alternative program.
The New Guidelines and Eligibility For HAFA
The Program:
The home affordable foreclosure alternatives program (HAFA) is valid from April 5, 2010 through December 2012. Alternatives are available to those who:
a) Failed to qualify the HAMP trial.
b) Missed two consecutive payments.
c) Failed on the modified terms requirement and
d) Requested for the alternative of Short Sell or Deed In Lieu.
One has to meet the basic criteria set in the modification program to become eligible for this option. Cash incentives are offered to participating servicers, investors and borrowers. The program allows homeowners to short sell and if that’s not possible use Deed in Lieu option. The hardship and income information submitted for HAMP are not required to be re-submitted and gives a pre-approved short sales to the borrower. The property then gets listed for sale. Freddie Mac is appointed as the compliance agency and this program works in support of the home affordable modification program (HAMP). The proceeds are used to cover the debts it can and the balance is dropped. This means it needs prior approval of the lender and hence incentives are offered to lenders to join the program. The first mortgage is completely released.
Benefits:
There are many benefits for all parties in this program in terms of cash incentives to the servicer, investor and the borrower after one month of success. It offers $1,500 cash to the homeowner as a "relocation allowance", $1000 to the primary lender and $1,000 to the second mortgage holder. Foreclosure proceedings are eliminated with modification, deed in lieu (DIL) method. This saves thousands of dollars. The ownership is transferred and the house will have a new owner and not vacant. One of the biggest advantages is the limited damage to one’s credit rating compared to foreclosure.
Who Are Eligible?:
The basic criteria as in home affordable modification program (HAMP) remains the same while it takes care of those who did not qualify due to low income or did not complete the trial. Even those who did not get the permanent change are eligible. If one has missed payments twice in succession, they can still get approved. Unlike other short sales or deeds-in-lieu, the loan servicer must agree to take the amount as full in lieu of the debts. This stops them from getting anything more. The HAFA application has to be submitted within 30 days of not getting HAMP or if they specifically requested the alternative program. A homeowner has to respond to the HAFA notice within 14 days. The total cycle is about 30 days for getting the approval or response from the lender.
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How it Works?:
The processes under the home affordable modification program (HAMP) are structured, documentation standardized and time limits set for each activity. Once a person agrees to short sell an independent appraiser sets the value of the property. Once the sale goes through the proceeds which is less than what is owed is given to the servicer. The lender has approved the sale and the owner cannot decide to change the minimum value. Another option, if the property title is free and clear, is the deed in lieu. Here the debtor hands over the property to the loan servicer in lieu of the mortgage. The time schedule is stipulated for finding a buyer and the number of days the new owner has to stay in the house. It also offers a commission to the real estate agent. The borrower is not required to give any cash or promissory note and forfeits his rights to get any money.
Lenders / Servicers:
Lenders receive incentives for participating in the new HAFA program and complying with the requirements. A list of participating lenders is available on the net. If there are second mortgages, they get a limited part of the proceeds but the first lender has to approve. Participation in the program is voluntary.