Thousands of homeowners struggle to keep current with their mortgage obligations and foreclosures continue to be filed against them in record numbers. In response, the Obama administration announced the HAMP mortgage modification guidelines which provided directions lenders were required to follow in determine who was eligible for modification.
The problem with the HAMP modification program is the guidelines are too restrictive and not enough homeowners are able to qualify for the program. A related problem is lenders and servicers are totally unprepared to effectively process the applications for modification in the first place. A fact which is admitted in a report recently issued by the Government Accountability Office. (No word on how to get lenders/servicers to be more effective or efficient in this area so the nightmare continues.)
HAFA- The Home Affordable Foreclosure Alternatives Program
This new program provides alternatives to homeowners who do not qualify for a HAMP modification and offers financial incentives to lenders who offer this new alternative to homeowners. A lender must first determine that a homeowner does not qualify for a HAMP modification, then the lender may offer the homeowner one of the HAFA alternatives like a deed in lieu (where the lender allows the homeowner to deed the property back to them) or a short sale (where the lender agrees to accept less than what is owed on the property.) Both alternatives require the lender to release the borrower from any further liablity on the note. The program has an effective Date of April 10, 2010, but lenders may elect to apply the program guidelines earlier. Key components of the program are:
- Complements HAMP by providing alternatives for borrowers who are HAMP eligible.
- Utilizes borrower financial and hardship information collected in conjunction with
HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- Prohibits the servicer from requiring, as a condition of approving the short sale, a
reduction in the real estate commission agreed upon in the listing agreement.
- Requires that borrowers be fully released from future liability for the debt.
- Uses standard processes, documents and timeframes.
Provides financial incentives to borrowers, servicers and investors.
In order to qualify for this new program, the loan/borrower must meet the following criteria:
- The property is the borrower’s principal residence;
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,7501
- The borrower’s total monthly mortgage payment (as defined in Supplemental Directive09-01) exceeds 31 percent of the borrower’s gross income.
Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:
- Does not qualify for a Trial Period Plan;
- Does not successfully complete a Trial Period Plan
- Is delinquent on a HAMP modification by missing at least two consecutive payments; or
- Requests a short sale or DIL.
This new program offers additional alternatives for homeowners but taking advantage of the program and determining who fits within its guidelines will take some time to figure out. For more information on HAMP/HAFA, contact Matt Weidner at www.mattweidnerlaw.com