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), that is through a mortgage modification. HAFA aims to step in where HAMP fails, in other words when homeowners are so far behind or upside down that a modification doesn’t make sense, HAFA tries to provide an alternative.

The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers (up to $3,000), servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosure.

Determination of Eligibility

HAFA alternatives are available to all HAMP-eligible borrowers 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 deed-in-lieu. The property must also be the borrower’s primary residence, the borrower’s total monthly payment must exceed 31% of their gross income, and the unpaid balance on the mortgage must be less than or equal to $729,750.

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 deed-in-lieu. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided 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.

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

The guidelines for HAFA are detailed further in the documents listed below.

Supplemental Directive
Last updated: March 26, 2010
Short Sale Agreement (Exhibit A)
Last updated: March 26, 2010
Request for Approval of Short Sale (Exhibit A1)
Last updated: March 26, 2010
Alternative Request for Approval of Short Sale (Exhibit B)
Last updated: March 26, 2010
Deed-in-Lieu of Foreclosure Agreement (Exhibit C)
Last updated: March 26, 2010

The HAFA program took effect on April 5, 2010–and sunsets on December 31, 2012.

Again, 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. Servicers participating in HAMP are also required to comply with HAFA.

HAFA Provisions

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 and, if the subordinate lien holder(s) receive an incentive under HAFA, those debts as well (no cash contribution, promissory note, or deficiency judgment is allowed).
Uses standard processes, documents, and timeframes/deadlines.
Provides the following financial incentives:
- $3,000 for borrower relocation assistance;
- $1,500 for servicers to cover administrative and processing costs;
- Up to $2,000 for investors who allow a total of up to $6,000 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.