In 2009, the United States Treasury Department launched a new initiative designed to assist Home Affordable Modification Program (HAMP) qualified borrowers avoid foreclosure. Under HAMP, qualified applicants must first prove themselves able to sustain the modified payment schedule through a trial program. Unfortunately, a high percentage of these qualified applicants are unemployed and unable to maintain timely payments. The next step for these homeowners is to enroll in the HAFA program.
In order to protect these homeowners from the long-lasting credit damage caused by foreclosure, the Treasury came up with a new program called Home Affordable Foreclosure Alternative Program (HAFA). This program has many advantages for the failing borrower and for the investor seeking a motivated short sale seller.
HAFA provides borrowers who are qualified for HAMP a viable alternative to foreclosure. Under the terms of HAFA, the borrower who finalizes the transaction is fully released from the future liability for the first mortgage debt. This important provision protects the borrower and minimizes the damage to future credit reports.
Borrowers must agree to all of the Treasury’s short sale terms before listing the property. This includes an agreeable short sale price and an agreeable occupancy and closing arrangement.
To the borrower’s distinct advantage are a $3,000 allowance for the borrower’s relocation assistance and a $1500 allowance to cover administrative and processing fees. Investors receive $2,000 for allowing $6,000 to be distributed to subordinate lien holders. The Treasury Department has developed a formula for distribution of these funds.
HAFA is a sensible approach to a sensitive and negative situation. Sellers involved in the HAFA process are ready, willing and able, unlike independent short sale sellers. There are just too many advantages for investors in HAFA. This program may be the best initiative put forth by the Treasury to date. Serious residential investors should know everything about HAFA.