First we had HAMP – the Home Affordable Modification Program. Now we have HAFA, the Home Affordable Foreclosure Alternative Program.
When we wrote about it back in February it sounded like it might be a benefit to homeowners in trouble because, among other things:
- No foreclosure could be finalized during the marketing period
- Homeowners would have up to one year to market and sell their homes
- Short sales would be pre-approved, which might lead to faster closings
- No deficiency judgment against homeowners would be allowed
- The homeowner will be given $1,500 to use for moving expense
We mentioned then that the stated goal was to simply the short sale and deed-in-lieu procedures, but that the “simple” guidelines were outlined in a 43 page document. That should have been a warning!
One statement taken directly from the 43 page document says:
https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf
- Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
Why, if the homeowner made application and was eligible for a loan modification, did he not get that loan modification? Obviously they were trying to keep their homes. Under HAFA they’ll either sell short or turn it back to the lender with a deed in lieu of foreclosure.
In order to qualify for HAFA the borrower must be in default or in danger of being in default soon, but to qualify, the lender may require him to make payments, up to 31% of his income. Isn’t that how much he would have been required to pay with a loan modification?
While some experts state that the banks do not want to own any more homes, their behavior in granting (not granting) loan modifications makes that statement questionable.
Another strange provision of HAFA says that the homeowner must transfer clear title.
The lender will allow up to 3 percent of each second loan or lien, up to $3,000 in total, to help the homeowner satisfy these obligations. That seems a bit unclear – but it appears to mean that the homeowner will have to pay off any second mortgage or negotiate with that second mortgage holder to accept a minimum amount in exchange for a full release.
Under HAFA the loan servicer will be required to get an independent appraisal of the value of the house. The borrower will not be charged for this unless the short sale or deed-in-lieu is not completed. Should that happen, the cost of the appraisal will be added to the balance due on the home loan.
Of course, use of the HAFA program will have a negative impact on the homeowner’s credit scores. How that will compare to the effect of foreclosure is yet to be seen.
Author: Marte Cliff
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