The Home Affordable Foreclosure Alternatives (HAFA) is a new government funded program that is geared to helping out people who are unsuccessfully trying to sell their homes. The Obama administration put this together with the hopes of revitalizing the housing market. The way the program works is the sellers receive pre-approved short sale terms before they list the property. Additionally they are no longer liable for the first mortgage and can for receive up to a $1,500 loan for relocation assistance. While it sounds simple on the surface, there are a lot of nuances and rules that apply as well.
HAFA was designed to work in hand in hand with the HAMP (Home Affordable Mortgage Program) program and it is set up fir borrowers who despite being eligible for HAMP can’t afford to keep their homes. So the question is, will HAFA achieve its goal and help turn around the housing market?
There are many problems with HAFA starting with the fact that the banks are not required to participate. This means that the bank will be giving up the opportunity to collect the debt that is owed to them or sell the debt to a collection agency. It doesn’t appear that the banks will be able to avoid losing money in this scenario which doesn’t bode well for the future of HAFA.
There are, of course, some monetary incentives for the banks to participate in HAFA, so they won’t just say no to every case, they will have to judge each case on it own merit in order to decide if they are going to participate.
Sadly, that is not the end of the issues with HAFA, the program is designed so poorly that I would question why homeowners would opt to participate. Some of the problems with HAFA, from the homeowners’ perspective are:
- The lender will decide what to list the house for. This isn’t done through any appraisals or knowledge of the house, it’s a decision that is made, and the homeowner must live with it.
- The homeowner must continue to make pay make mortgage payments every single month. The payment needs to be 31% of their current gross monthly income.
- At the time of closing, all junior liens on the house must be settled. They either need to be paid in full, or negotiated down, and paid, with the lien holders. The first lien holder will allow the junior lien holders to be paid 3% of the loan amount for a maximum of $3,000 combined, or 6% or $6,000 according to Bank of America. Why the Junior Lien holder will agree to receive such a percent is beyond me.
- One may not list the home for sale for the first 90 days, and it cannot be sold to family, friend or known business associates.
- One has 120 days to sell the house at the price that was determined for them. At the end of this period one can request additional time, but that will not exceed 360 days.
- The person who buys the house must sign a contract stating that they will not sell the house for 90 days.
These are just some of the problems that HAFA is, and will continue, to encounter. If someone has done everything properly and still can’t sell the house, then the bank will give them a deed in lieu of foreclosure and they will receive 1,500 dollars for their trouble.
Those who are in favor of HAFA cite a standardizing of all documents; which will bring out less confusion, the obvious benefits to the homeowners, and the ease of use for the Realtors.
The program is set to end on December 31st 2012 if HAFA accomplishes it goals, namely, bringing awareness to short sales as a viable alternative to foreclosure, and thus helping to fix the housing market, it’s safe to assume that the program will be extended.
