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HAFA Explained

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HAFA, which will help homeowners who are unable to retain their home under the Home Affordable Modification Program (HAMP), provides incentives in connection with short sales and deeds-in-lieu of foreclosure.


The program: 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 under HAMP.
  • Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
  • Prohibits the servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6%).
  • Requires borrowers to be fully released from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well (no cash contribution, promissory note, or deficiency judgment is allowed).
  • Uses a standard process, uniform 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 a $1,000 match for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders.
  • 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.
  • 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.

TIMELINE
Notification

  • If a servicer has not already discussed a short sale or DIL with the borrower, it must notify the borrower in writing of these options and give the borrower 14 calendar days to respond, orally or in writing. If the borrower does not respond, that ends the servicer’s duty to give a HAFA offer.
  • Servicers must consider HAMP-eligible borrowers for HAFA within 30 days after the borrower does at least one of the following: Does not qualify for a HAMP trial period plan Does not successfully complete a HAMP trial period plan Is delinquent on a HAMP modification (misses at least 2 consecutive payments) Requests a short sale or DIL

Short Sale Agreement

  • The borrower has 14 calendar days from the date of the Short Sale Agreement (SSA) to sign and return it to the servicer. The SSA must give the borrower an initial period of 120 days to sell the house (extensions permitted up to a total of 12 months).

Purchase Offer

  • Within 3 business days of receiving an executed purchase offer, the borrower (or agent) must submit a completed Request for Approval of Short Sale (RASS) to the servicer, including a copy of the sale contract and all addenda buyer documentation of funds or pre-approval/commitment letter from a lender all information on the status of subordinate liens and/or negotiations with subordinate lien holders.
  • Within 10 business days after the servicer receives the RASS and all required attachments, the servicer must approve or deny the request and advise the borrower.

Closing

  • The servicer may require the closing to take place within a reasonable period after it approves the RASS, but not sooner than 45 days from the date of the sales contract unless the borrower agrees.
  • The servicer must release its first mortgage lien within 10 business days (or earlier if required by state or local law) after receipt of sales proceed from a short sale or delivery of the deed in the case of a DIL. Investor must waive rights to seek deficiency judgments and may not require a promissory note for any deficiency.


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