Home Affordable Foreclosure Alternatives Program: Overview

The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.

Fannie Mae wants distressed sellers to avoid foreclosure and jump back into home ownership.  To incentivize homeowners to short sale or deed in lieu they have reduced the waiting period for homeownership again.

Struggling borrowers are now eligible to apply for a Fannie Mae backed loan in two years instead of the traditional four (down from five in 2008).   The new policy becomes active in July.   After the two year waiting period, to qualify, the borrower will have to put down a 20% minimum down payment.  If they have an extenuating circumstance like job loss, they may be able to put down as little as 10%.

Does this mean that the government is giving borrowers an “out”?  No, borrowers are instead being encouraged to re-enter the housing market especially if they lost their home at truly no fault of their own.

Freddie Mac is still holding out at a minimum four year waiting period for borrowers to purchase after short sale or deed in lieu of foreclosure.  Both Fannie and Freddie make a seller wait a minimum of five years after a foreclosure.

Borrowers who qualify for and sign-up for the HAFA short sale program will, by agreement, have an end result of a short sale or deed in lieu of foreclosure.

Providing sellers with a referral to a mortgage broker who can better explain the Fannie Mae option for re-purchase would give them incentive to move forward.  Provided the rest of their financial picture meets lending requirements, these sellers may be the perfect candidate for a lease purchase.