What is HAFA?
Home Affordable Foreclosure Alternatives Program (HAFA)
In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2013.
HAFA provides incentives in connection with a short sale or a deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program (HAMP information bottom of page). Servicers participating in HAMP are also required to comply with HAFA. A list of servicers participating in HAMP (including HAFA) is available at HERE.
- 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 in connection with consideration of a loan modification.
- Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
- Requires borrowers to be fully released from future liability for the first mortgage debt (Note: New California Law also now protects Sellers from liability with Non-HAFA Traditional short sales as well).
- Uses standard processes, documents, and time frames/deadlines.
- Provides the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $8,500 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
- 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.
Beware of HAFA - Why HAFA May Not Be Good For Sellers
Home Sellers are not always made aware that the HAFA program may not be a good choice for their situation. Reading the HAFA fine print may make many Sellers realize the program seems to be more beneficial to the bank than to the Seller themselves. Below are a couple negative descriptions of the HAFA short sale to give Sellers a good picture of the potential pitfalls of the HAFA program, and why a Seller may not want to choose a HAFA short sale even though the bank says the Sellers qualify for one:
REALTORS® also continue to raise issues with the National Association of Realtors (NAR) about shorts sales and the HAFA process. NAR has created an online mailbox for REALTORS® to share their experiences and provide specific examples of the problems they are facing with lenders. These emails are collected and used by NAR in its ongoing discussions with lenders and the Treasury Department.
The one good thing about HAFA is that you do have the power to “opt out” in advance. These days, many Realtors, law firms, and 3rd party negotiators are having a Seller sign a document in advance "opting out" of the HAFA program and submitting that signed form with the Short Sale Package that is submitted to the bank. The verbage of the Opt-Out form would start out something like this: “The undersigned property owner hereby requests processing of ONLY a traditional short sale and NOT a HAFA short sale. The reasons for REQUESTING A TRADITIONAL SHORT SALE rather than a HAFA short sale are indicated below.”
Under that paragraph, the OPT-OUT of HAFA form would have several reasons listed, and the Seller checks any of the reasons that apply. Those reasons could be any of the following, but not limited to the following:
- I do not believe I am eligible for, or I am not willing to participate in, the HAMP program.
- This property is not my primary residence.
- I am unwilling to agree in advance to a deed in lieu of foreclosure should he HAFA short sale process take more than the minimum allowed time.
- I am unwilling to contract out of my State’s foreclosure laws and consumer protection statutes, which is in essence what HAFA requires of a homeowner.
- There are multiple junior liens against the property and I will be unable to negotiate their release with the limited allowances available under the HAFA program.
- I am unwilling to have the lender suggest/require a certain listing price and/or a sales price under the HAFA program as those numbers could potentially be unreasonable given the current local real estate market conditions, or the physical condition of my home, or the location of my home.
The HAFA program use to have some luster to it when it was a guarantee that when a short sale was approved, the lenders no longer had any deficiency rights to come after a seller for the difference. However, with the new law passed in California, a traditional NON-HAFA short sale now has that same protection. All liens holders, including junior lien holders, no longer have the right to come after a seller for the difference in a traditional short sale in the state of California. California Senate Bill 458 was signed into law on July 15, 2011.
Home Affordable Modification Program (HAMP)
On March 4, 2009, the U.S. Department of the Treasury (Treasury) announced details of the Home Affordable Modification program (HAMP) as part of the Making Home Affordable Program. HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers' monthly mortgage payments. Freddie Mac is pleased to play a leadership role by implementing this program.
HAMP is effective immediately for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2013. Servicers must solicit eligible borrowers who are 31 or more days delinquent for a modification under HAMP, but cannot solicit borrowers for this program who are current or less than 31 days delinquent.
Guide Bulletin Update
On July 28, 2010, Freddie Mac issued Single-Family Seller/Servicer Guide (Guide) Bulletin, which announced that we made a comprehensive update to Guide Chapter C65, Home Affordable Modification Program, to reflect the changes issued in Guide Bulletins 2009-26, 2009-28, 2010-1, and 2010-3, and incorporated certain Treasury Supplemental Documentation Frequently Asked Questions (FAQs). Guide Bulletin 2010-17 also provided several additional new updates to our solicitation, eligibility, underwriting, and reporting requirements under HAMP.
Servicers are strongly encouraged to review the details in Guide Bulletin 2010-17 and our updated Guide Chapters B65, Workout Options, and C65, to fully understand our requirements for loss mitigation activities, including our hierarchy for evaluating borrowers for foreclosure alternatives.
- Mortgage and Borrower Eligibility
- Borrower Solicitation
- Underwriting Requirements
- HAMP Tools Overview
- Reporting and Incentives
This HAFA and HAMP page is strictly informational purposes only. You are strongly urged to seek legal, tax, or financial counsel if you have any legal, tax or financial questions with regards to the HAFA or HAMP programs. Real estate brokers will not provide such advice.