U.S. Treasury Department Home Affordable Foreclosure Alternatives Program
On November 30, 2009, in Supplemental Directive 09-09, the US Treasury Department created the HAFA Program (Home Affordable Foreclosure Alternatives Program) to establish short sale and deed-in-lieu of foreclosure (DIL) policies, procedures and forms to provide alternatives other than foreclosure for borrowers. This program was created for those borrowers who:
- Do not qualify for HAMP;
- Are unable to complete a HAMP loan modification; or
- Do not accept a HAMP loan modification.
The initial deadline for the non-GSE servicers and lenders to implement HAFA was April 5, 2010. The program expires December 31, 2012 unless it is extended. Lenders and servicers participating in HAMP, and all other qualifying loans, are required to follow the new rules in the HAFA program for all loans which meet the program’s qualifying criteria.
The HAFA guidelines were revised on March 26, 2010 in Supplemental Directive 09-09 Revised to deal with issues that had been raised with regard to the original HAFA short sale guidelines. The majority of the revisions dealt with increasing the amount of incentive payments for the parties to a HAFA short sale. Also, because of complaints about an apparent loophole for servicers to use portions of the real estate commissions to pay vendors who work for them, the language was changed to provide that vendor payments would be required to be made from the sales proceeds. The initial deadline for lenders to comply with HAFA was April 5, 2010. The program expires December 31, 2012. Lenders and servicers participating in HAMP, and all other qualifying loans, are required to follow the new rules in the HAFA program for all loans which meet the program’s qualifying criteria.
The HAFA program is described in Supplemental Directive 09-09 Revised and it regulates first lien mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac (Non-GSE Mortgages). Fannie Mae and Freddie Mac both issued thier own separate HAFA Guidelines on June 1, 2010 their own HAFA guidelines. The Fannie Mae HAFA Program and Freddie Mac HAFA program generally follow the same policies and procedures and almost mirror the model US Treasury Department’s HAFA program.
However, it is important to note that there are differences between the three HAFA programs that are critical for real estate agents and borrowers to understand.
Most recently the Treasury Department in Supplemental Directive 10-18 released new and revised HAFA policies and guidelines for 2011 for all non-GSE servicers and lenders.
The HAFA program simplifies and streamlines the use of short sales and DIL options by incorporating the following unique features:
- Standard process flow;
- Minimum performance timelines;
- Standard documentation;
- Utilizes borrowers 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 being listed;
- Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the short sale agreement;
- Requires that borrowers be fully released from future liability for debts (no deficiency liability); and
- Provides financial incentives to borrowers, servicers and investors and junior lien holders.
Each participating servicer in HAFA must develop a written policy, consistent with each investor’s guidelines, including the Freddie Mac and Fannie Mae HAFA short sale rules. that describes the basis on which the servicer will offer the HAFA program to borrowers. This policy may incorporate such factors as the severity of the loss involved, local market conditions, the timing of pending foreclosure actions and borrower motivation and cooperation. Considering that the larger servicers may service loans for dozens of lenders and investors, creating special HAFA rules consistent with individual investor guidelines may be burdensome to implement.
Servicers must evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options. Every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure or the servicer allows a pending foreclosure sale to be conducted. If the program works as planned, HAFA policies will result in huge increases in the number of short sale transactions for the next few years.