HAFA – HOME AFFORDABLE FORECLOSURE ALTERNATIVES – SHORT SALE
As of July 2010, there are an estimated 5.1 million Americans still having trouble paying their mortgages. The sub-prime meltdown is behind us. The main reason for the current delinquencies is loss of income, or other personal hardships.
The current administration has created HAFA. HAFA has now set procedure guidelines for people that need to exit a mortgage and avoid foreclosure.
The HAFA guidelines give people alternative choices to help them in an already bad situation. The basic HAFA guidelines are below. Naturally, there are other requirements the homeowner has to meet for each situation.
Mortgage Modification. This is the first thing the bank will try to work out. Many will not qualify for this because they cannot have over a 31% back end ratio to qualify. This may look complicated at a first glance. But in general, the reduced monthly mortgage payment can’t be more than 31% of your gross income. You also cannot have more than $5000 in cash reserves or 3X your monthly house payment, whichever is larger on deposit in the bank.
Deed in Lieu of Foreclosure. I normally see these when someone files for bankruptcy. In this situation, the bank knows the homes going to be within the bankruptcy and a foreclosure will happen. The bank thus saves the legal cost associated with the foreclosure procedure of taking the home back.
Deed in Lieu of Lease. An example of this situation is when the home is rented and the owner isn’t paying the mortgage. Instead of displacing the tenant they may take the deed back and allow the tenant to remain. I’ve personally never seen this happen but have heard of such instances.
Short Sale. It’s estimated that short sales will outnumber foreclosures this year. It’s a win-win for all parties involved. The HAFA program required Fannie Mae and Freddie Mac to set realtor guidelines for marketing short sales.
Now for the biggest new change people need to know: Fannie and Freddie announced in July 2010 that if someone doesn’t try to qualify for all the HAFA programs then the bank will pursue the homeowner for any mortgage short fall following a foreclosure sale. What does this mean? For example, if you owe $300K and the bank gets $225K in a foreclosure sale, then the bank will pursue that borrower for the $75K mortgage short fall. This is a major problem for many troubled homeowners not willing to participate in the HAFA programs. Banks will file judgments and they’ll make every attempt to collect balances. Fannie and Freddie stresses that wages will be garnished. So if you’re thinking about just walking away from your mortgage, or simply sitting back and allowing the home to go to foreclosure without embarrassing HAFA programs then the bank promises to make every legal effort to get their money one way or another. With this in mind it doesn’t make any since to sit back and allow the bank to take it back through a foreclosure without trying HAFA. The HAFA program will also pay you for moving expenses!
I participated in a webinar this week that included Freddie Mac, Fannie Mae and the US Treasury. They all expressed that people need to be honest and transparent in providing information in resolving a way to exit the home through the HAFA programs. The banks are willing to help people get on with their lives, but for people that keep trying to stay and not pay….they will not have as happy of an ending as the people that participate in HAFA.
I’m a certified Loss Mitigation realtor.
I’ve followed the HAFA program and understand the guidelines. I’ve helped many people exit a mortgage. I understand the guidelines and would be happy to answer any questions you may have if you’re mortgage isn’t something that is affordable anymore.
