HAFA Under HAMP - What Is It

The recently announced Home Affordable Foreclosure Alternatives program (HAFA) provides instructions for lenders and servicers participating in the Making Home Affordable Program and HAMP. HAFA is designed to streamline the short sale and deed-in-lieu process. Specifically, the program is aimed at presenting an alternative to foreclosure homeowners who were either ineligible or unable to get loan modifications for their existing loans and mortgages, as prescribed by HAMP. Additionally, another of HAFA's goals is to establish and maintain clear and easily understandable timelines, that are capable of being enforced against servicers. These timelines are intended to urge the servicers of these loans to respond and grant relief to the homeowners in a timely manner.

Under HAFA, short sales will be permitted if they are pre-approved before a property is listed on the market. This way, the servicers of the loans will not be able to reduce the commissions available to the hardworking professionals helping the distressed homeowners. Additionally, borrowers will be freed from future liability for the debt and there will be financial incentives created for borrowers, servicers and investors alike.

Specifically, HAFA sets a deadline of three business days to submit an executed purchase offer to the servicer with regard to a short sale and the servicer then has ten business days to respond to the offer, thereby speeding up and clarifying the process. This standardization works to the benefit of everyone involved. Although servicers are still allowed to negotiate commissions (not to exceed 6 percent), they are only allowed to do before the property is listed and not after.

Also, the servicer will still be able to decide on the minimum net proceeds for a short sale; however if an offer presented to the servicer by the borrower or listing broker meets the net proceeds requirement, then the servicer must accept it. This creates a beneficial environment for the selling homeowners and the potential buyers making offers.

To further facilitate this process, each participating servicer is also required to establish and uphold a written policy that describes the basis and terms upon which it will offer the HAFA program to its borrowers. However, it must be noted that all borrowers must be evaluated for a loan modification under HAMP before they can avail themselves of benefits under HAFA.

Finally, HAFA goes into effect on April 5, 2010, however the industry rumors are leaning toward the earlier implementation of this program by servicers. Currently, the program is available only for non-Fannie Mae- or Freddie Mac-owned loans up to $729,750 but this may change in the future.