Home Affordable Foreclosure Alternative (HAFA) is an extension of HAMP (Home Affordable Modification Program). The program was introduced by the Treasury Department to help homeowners who can’t qualify for mortgage modification under HAMP. The program provides the homeowners with an alternative to foreclosure and to speed up the short sale process.

The HAFA rules are applicable to lenders who participate in the HAMP program and homeowners who do not qualify for mortgage modification. Other requirements include – property is primary residence, mortgage originated before 1st January 2009, unpaid amount does not surpass $729,750, mortgage is owned by Fannie Mae or Freddie Mac, and etc.

The program is designed to speed up the short sale process, standardize the short sale process among lenders, and release homeowner’s/ borrower’s future responsibility for the first mortgage debt.

It has been already said that the program has been designed to boost the short sale process. It aims to improve the short sale process in the following ways:

• The program accepts homeowner’s financial hardship information already collected in connection with consideration of a mortgage modification under HAMP.
• The program lets homeowners to obtain pre-approved short sales terms before listing the property.
• The servicers/lenders can’t ask for a reduction in the real estate commission (up to 6 %) as fixed in the listing agreement.

• The program offers financial incentives to homeowners for relocation assistance, to the servicers to cover administrative costs as well as to the investors for allowing a total of up to $3,000 in short sale proceeds.
• The program allows borrowers to be completely released from future responsibility for the first mortgage (promissory note, no cash contribution or deficiency judgment is allowed).

Well, this is a difficult question to answer. The industry is skeptical about it for various reasons such as:

• Poor result of HAMP: The underwhelming results of the HAMP program. It is a fact, till January 2010, HAMP had only created around100, 000 modifications, despite making promises to reach 4 million homeowners. However, the results were far from the best.

• No penalty: There is no penalty for violating the rules. There are no repercussions if the terms aren’t followed as specified or if the total short sale process takes 20, or 30 days.

• Confusion: Banks have started their own short sale packages. People are getting confused between the HAFA files and the bank’s short sale packages.

• Low incentives: Financial incentives are low – $1000 incentive payouts (for the servicer of the first mortgage) aren’t really a great amount of money as compared to the volume of work involved to process one of these deals. Second lien holders can get maximum $3,000, but that’s only slightly more than what they are getting today.

• No deficiency judgment: Since lenders aren’t allowed to utilize deficiency judgments under HAFA, they lose the opportunity to collect some of those outstanding amounts.

Still, many are excited about the program. We, however, hope that the impact of the program will be marginal at best.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’ , ‘ Mobile Home Loan with Bad Credit’ , and ‘ How much mortgage can I borrow”?