On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (HAFA). HAFA is part of the Home Affordable Modification Program (HAMP). HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program. Loan Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP is available at MakingHomeAffordable.gov.

HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which will issue their own versions of HAFA in coming weeks.

HAFA is a complex program, with 43 pages of guidelines and forms, designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure. HAFA:

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

The program does not take effect until April 5, 2010, but servicers may implement it before then if they meet certain requirements. The program sunsets on December 31, 2012.

Contact me for help understanding and using HAFA.

If 2009 was “the year of the foreclosure,” it may very well be that 2010 becomes “the year of the short sale.” The expectation is that short sales in Englewood Florida and the surrounding communities of North Port, Port Charlotte, Cape Haze, Placida, Rotonda, Gulf Cove and South Gulf Cove will noticeably rise from the reported 2009 figures to the end of this year. There are several factors worth noting, not the least of which is a developed sense of understanding on the lender or servicer side. When done right, short sales can be a win for the borrower and less of a loss for the lender.

The biggest issue is the failed expectations on the buyer and seller side. Agents in Englewood Florida and the surrounding communities, and lenders have experienced very challenging times. Short sale transactions often fail because of unrealistic expectations. To tackle this, buyers need to be better educated on short sales and better prepared for this process. Sellers need to realize that the best way to complete the transaction is to partner with their lender. Too many times the seller’s Real Estate agent is trying to hold the deal together on his or her own, while the seller removes themselves from the process. This will likely cause the sale to fall apart.

What frustrates agents, sellers and borrowers is when a lender or servicer holds more than one lien against the subject property, yet cannot approve the short sale simultaneously. In many cases, an institution may quickly approve the short sale for the senior lien, but move much more slowly on the approval for the junior lien. There are opportunities for improvement on the servicer side to communicate better internally to get these deals decided on more quickly.

Well executed short sales are important because they stop properties from turning into REO homes. If the short sale is well constructed, these sales should not have quite the negative pressure on the market that REO sales have. The key is to find a solution that has a benefit for all parties involved and complete the deal.