In an effort to try to ease the housing market crisis, a new government program was implemented earlier this year to try to help homeowners. The Housing Affordable Foreclosure Alternatives Program(HAFA) is aimed at speeding up and streamlining the short sale process. 

For homeowners who are eligible, they can avoid foreclosure by performing a Short Sale or by giving the property back to the lender which is also known as a Deed-in-Lieu of foreclosure.

Eligible homeowners also can receive other benefits such as relocation assistance and protection from collection actions by their lenders. Below are some other benefits and highlights of this program:

  • Borrowers receive $3,000 for relocation assistance.
  • Lenders must allow the opportunity for the borrower to attempt a Short Sale or accept a Deed-in-Lieu of foreclosure before following through with a foreclosure.
  • Borrowers are fully released from future liability for the first mortgage debt – lenders cannot ask for a cash contribution, promissory note, or deficiency judgment to complete a short sale or DIL.  Additionally, junior lien holders (i.e. 2nd mortgages) who participate in the HAFA incentives must also release borrowers from future liability. 
  • Provides an alternative to HAMP eligible homeowners (borrowers) who cannot make mortgage payments to keep their home.  
  • Utilizes information on the borrower’s finances and hardship already collected by the lender under HAMP. 
  • Standardizes forms, procedures, and timelines to speed up the short sale process. 
  • Provides borrowers with pre-approved short sale price before they list the property for sale. 
  • Mandates that the borrower (homeowner) be released from any further financial obligations once the sale is completed. 
  • Provides financial incentive for the lender to complete the short sale process.

The requirements that homeowners must meet to be eligible for the HAMP modification program are listed below:

  • The property is the borrower’s principal residence.
  • The first mortgage originated before January 1, 2009.
  • The mortgage is delinquent or default is reasonably foreseeable.
  • The mortgage’s unpaid principal balance is no more than $729,750 (higher limits for 2 to 4 unit dwellings).
  • The borrower’s total monthly mortgage payment exceeds 31% of their gross income.
  • The mortgage also needs to be serviced by a lender who is participating in the HAMP program (the majority of lenders are).

There are currently millions of home loans that are in default throughout the US.  Lenders are often just holding these properties, because they know that they cannot foreclose on these properties and recoup any losses.  The financial incentives offered through the HAFA program may entice these lenders to offer more properties for a short sale, placing more homes on the market, and ultimately driving down prices even further.

 

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