Fox5 GDA Real Estate Segment w/ John Adams
for Tuesday, July 19, 2011

TOPIC : New Treasury Program Designed to Prevent Foreclosures: It's HAFA

SUMMARY: First there was TARP, then there was HAMP, but the new solution to the real estate crisis is HAFA, the latest program from the Treasury Department to slow down the tidal wave of foreclosures across the USA.

HAMP was designed to allow a lender to offer the delinquent borrower a LOAN MODIFICATION, which might lower interest rate and payments for a period of time. But that plan has not worked well.

If a borrower has lost his job and is upside down on his loan, he's probably headed for foreclosure anyway. Enter the HAFA Program, also known as the Home Affordable Foreclosure Alternative. Here's the details:

The program provides incentives for lenders to accept short sales or deeds-in-lieu as a way to avoid foreclosure, and it might just work!

1. The House Sells, the Debt is Erased:

The homeowner still loses his property, but it can eliminate the effects of a foreclosure on the homeowner’s credit and stops the lender from pursuing the debt in court. This prevents the foreclosure and speeds the healing process for the house.

2. US Government Provides Incentives:

Financial incentives for participation in the program include a $1,000 servicing bonus for lenders and a $1,500 relocation bonus for the displaced homeowner. This is the first time that any federal program has allowed a short seller to walk away from the closing table with any cash.

3. HAFA is a Post-Modification Alternative:

HAFA is designed for homeowners who have applied to HAMP for assistance but have had no success with their loan modification program. To participate in HAFA, homeowners must still meet HAMP’s eligibility criteria (principal residence, first-lien mortgage, serious delinquency, unpaid balance under $729,750, and a mortgage payment over 31 percent of gross income).

4. HAFA Moves Much More Quickly:

Homeowners must be considered for HAFA within 30 days if they cannot meet HAMP’s requirements or if they specifically request consideration for HAFA. This is in stark contrast to a typical short sale request which often takes 6 to 9 months and reams of paperwork before it is even considered.

5. Lender Must Approve Transaction:

As with other short sales and deeds-in-lieu, the lender must approve of the transaction and conduct their own appraisal. Under HAFA, however, they must agree to accept the sale of the house as payment in full, waiving their right to sue the homeowner for any deficiency.

6. Junior Mortgages Get Incentive Also:

Lenders of HELOCs and other junior liens may be allowed to keep a limited portion of the proceeds (up to $3,000 each) of a short sale, with the first-lien lender’s approval.

These funds are part of an incentive program for junior lien holders to waive their right to collect the balance due on their loans.

7. Most REALISTIC Government Program Yet:

In my opinion, this program is finally a belated recognition by the Treasure that pervious attempts to slow the flow of foreclosures have been too little and too late. For the first time since this crisis began, we are beginning to see a Treasury response that uses common sense as opposed to red tape and bureaucracy. Let's hope it actually works.

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