Ask The Expert: What is a HAMP Modification? What is a HAFA Short Sale?

Q. What is a HAMP Modification? How do I qualify?

A. In February 2009, Congress introduced a comprehensive Financial Stability Plan to address help struggling homeowners get relief and avoid foreclosure.

The Home Affordable Modification Program (HAMP) provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. Over 1.5 million homeowners have already made use of the program. The program is on track to reach 3 to 4 million homeowners by 2012.

Who is eligible? To qualify, the property must be the borrower’s primary residence, the borrower must be facing demonstrable hardship, the amount owed on the first mortgage must be equal to or less than $729,750, the current mortgage must have been obtained before January 1, 2009, and th payment on the first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) must be more than 31% of borrower’s gross income.

Soon after its inception, the HAMP program expanded flexibility for mortgage servicers to assist more unemployed homeowners and homeowners who are underwater through the program.

TheSecond Lien Modification Program offers homeowners a way to modify their second mortgages to make them more affordable when their first mortgage is modified under the Home Affordable Modification Program.

The Home Affordable Refinance Program gives homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments.

The Home Affordable Foreclosure Alternatives Program (HAFA) provides opportunities for homeowners who can no longer afford to stay in their home but want to avoid foreclosure to transition to more affordable housing through a short sale or deed-in-lieu of foreclosure.

Q. What is the HAFA short sale? How does it differ from a regular short sale?

A. The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers (see above) who:

1) do not qualify for a Trial Period Plan;
2) do not successfully complete a Trial Period Plan;
3) miss at least two consecutive payment during a HAMP modification; or,
4) request a short sale or DIL.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided the title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

The HAFA program is aimed at distressed borrowers who don’t qualify for a loan modification under the Home Affordable Modification Program (HAMP). Before foreclosing on homeowners, loan servicers are instructed to solicit them to determine if they are interested in pursuing a short sale or, if that fails, a deed-in-lieu of foreclosure. If borrowers are interested in pursuing that option, the new directive gives loan servicers 30 days to send the borrower a short-sale agreement, which spells out list price or acceptable sale proceeds. Once a borrower has executed a sales contract, the directive gives loan servicers 30 days to communicate their approval or disapproval.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.

Have a question that needs an answer? Email me.

Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885,
(O) 310-571-1364 DIRECT
(D) (310) 800-2954

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