In light of the rising number of property foreclosures in the United States, the government has expanded the Home Affordable Modification Program (HAMP) to include provisions and incentives for servicers to allow short sales or deeds-in-lieu as positive options for eligible homeowners in default who wish to avoid foreclosure. The new program is called Home Affordable Foreclosure Alternatives (HAFA).
Participation in HAFA cannot save the homeowner from losing his or her property, but it can eliminate the effects of a foreclosure on the homeowner’s credit. Financial incentives for participation in the program include a $1,000 servicing bonus for lenders and a $1,500 relocation bonus for displaced homeowners.
HAFA is designed for homeowners who have applied to HAMP for assistance but have had no success with their loan modification program.
- Homeowners must be considered for HAFA within 30 days if they cannot meet HAMP’s requirements
- As with other short sales and deeds-in-lieu, the lender or loan servicer of the primary mortgage must approve of the transaction and conduct their own independent appraisal.
- It is up to the lender or servicer of the first-lien mortgage whether they or the homeowner negotiate with any subordinate lien holders.
A short sale is a process in which the lender(s) agrees to accept less than the balance due on the mortgage(s) or lien(s) in order to avoid the cost of foreclosure.
Unlike a short sale, a deed-in-lieu simply allows the homeowner in default to transfer the deed to the property back to the lender in exchange for partial or full payoff of the mortgage.
In either case, HAFA requires that the lender agree to suspend all foreclosure sales in good faith, pending the outcome of either transaction. In the case of a short sale, the lender also must agree to pay the administrative closing costs.
The Department of the Treasury, which authorizes all programs under the Making Home Affordable umbrella, has designated Freddie Mac as its compliance agent.
The HAFA program is set to begin on April 5, 2010. Servicers may initiate a HAFA transaction earlier in 2010 under certain conditions. As of this writing, all HAFA agreements must be finalized and signed by December 31, 2012.
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