Home Affordable Foreclosure Alternatives Program

The Home Affordable Foreclosure Alternatives (HAFA) Program provides opportunities for borrowers to transition to more affordable housing through a short sale when they can no longer afford to stay in their home but want to avoid foreclosure. HAFA provides financial incentives to servicers, investors, and borrowers that utilize a short sale to avoid a foreclosure on a HAMP-eligible loan.

Eligibility

A loan is eligible for HAFA if the servicer verifies that all of the following criteria are met:

First lien
The mortgage loan is a first lien mortgage loan originated on or before January 1, 2009. This includes mortgages secured by:
  • Cooperative shares
  • Condominium units
  • Manufactured housing (the first lien mortgage loan must be secured by the manufactured home and the land, both of which must be classified as real property under applicable state law).
Delinquent or in imminent default, foreclosure or bankruptcy
The mortgage loan is delinquent or default is reasonably foreseeable. Loans currently in foreclosure or bankruptcy are eligible.
Owneroccupied, single family property
The mortgage loan is secured by a one- to four-unit property, one unit of which is the borrower’s principal residence. Additionally, a loan may be considered for HAFA if:
  • The property was originally non-owner occupied, but the servicer can verify that it is currently the borrower’s principal residence.
  • The borrower is temporarily displaced (e.g., military service, temporary foreign service assignment, or incarceration) but was occupying the property as his or her principal residence immediately prior to his or her displacement and the current occupant is not a tenant.
Not vacant or condemned
The property securing the mortgage loan is not condemned. The property securing the mortgage loan is not vacant, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA), Alternative Request for Approval of Short Sale (Alternative RASS) or DIL Agreement if the borrower provides documentation that the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence indicating that the borrower has purchased a one- to four-unit property 90 days prior to the date of the SSA, Alternative RASS or DIL.
Unpaid principal balance limits
The current UPB of the mortgage loan not including arrearages is not greater than:
  • 1 Unit $729,750
  • 2 Units $934,200
  • 3 Units $1,129,250
  • 4 Units $1,403,400
Minimum monthly mortgage payment ratio
The borrower’s monthly mortgage payment (including principal, interest, taxes, insurance, and when applicable, association fees) prior to the short sale or DIL is greater than 31 percent of the borrower’s verified monthly gross income.
Financial hardship
A borrower has documented a financial hardship and represented that he or she does not have sufficient liquid assets to make the monthly mortgage payments.
Program cutoff date
The servicer has received an executed HAFA SSA or DIL Agreement by the borrower on or before December 31, 2012.

Protections Against Unnecessary Foreclosure

Pursuant to the servicer’s HAFA Policy, 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. At the servicer’s discretion, the servicer may initiate foreclosure or continue with an existing foreclosure proceeding during the HAFA process, but may not complete a foreclosure sale: While determining the borrower’s eligibility and qualification for HAFA. While awaiting the timely return of a fully executed SSA. During the term of a fully executed SSA. Pending transfer of property ownership based on an approved sales contract per the RASS or Alternative RASS. Pending transfer of property ownership via a DIL by the date specified in the SSA or DIL Agreement.

Short Sale Process

The HAFA short sale process employs standard form documents and defined performance timeframes to facilitate clear communication between the parties to the listing and sale transaction. Servicers must adhere to the following guidelines in connection with the issuance of an SSA.

Minimum Acceptable Net Proceeds

Prior to approving a borrower to participate in a HAFA short sale, the servicer must determine the minimum acceptable net proceeds (Minimum Net) that the investor will accept from the transaction and in accordance with its HAFA Policy. The Minimum Net may be expressed as a fixed dollar amount, as a percentage of the current market value of the property, or as a percentage of the list price as approved by the servicer. However, the Minimum Net must be at least equal to or less than the list price minus the sum of allowable costs that may be deducted from gross sale proceeds (or the acceptable sale proceeds).

Once determined, the servicer must document the minimum net in the servicing system and/or mortgage file for each property subject to HAFA. After signing an SSA, the servicer may not increase the minimum net requirement until the initial SSA termination date is reached (not less than 120 calendar days). Subsequent changes to the minimum net when the SSA is extended must be documented.

Allowable Transaction Costs

In determining the Minimum Net, the servicer must consider reasonable and customary real estate transaction costs for the community in which the property is located and determine which of these costs the servicer or investor is willing to pay from sale proceeds. The servicer must describe the costs that may be deducted from the gross sale proceeds in the SSA.

Arm’s Length Transaction

The short sale must be an arm’s length transaction with the net sale proceeds (after deductions for reasonable and customary selling costs) being applied to a discounted (short) mortgage payoff acceptable to the servicer.

Short Sale Agreement

Either proactively, or at the request of an eligible borrower, the servicer will prepare and send an SSA to the borrower after determining that the proposed sale is in the best interest of the investor. A borrower may not participate in a TPP and agree to an SSA simultaneously. The servicer will also provide the borrower a RASS, pre-populated with contact information for the servicer, the property address and the loan number.

While servicers may amend the terms of the SSA in accordance with investor guidelines, applicable laws or local real estate practice, at a minimum the SSA must include the following:

  • A fixed termination date not less than 120 calendar days from the effective date of the SSA (SSA Effective Date). The SSA Effective Date must be stated in the SSA and is the date the SSA is mailed to the borrower. The term of the SSA may be extended at the discretion of the servicer up to a total term of 12 months if agreed to by the borrower, in accordance with investor guidelines.
  • A requirement that the property be listed with a licensed real estate professional who is regularly doing business in the community where the property is located.
  • Either a list price approved by the servicer or the acceptable sale proceeds, expressed as a net amount after subtracting allowable costs that the servicer will accept from the transaction.
  • The amount of closing costs or other expenses the servicer will permit to be deducted from the gross sale proceeds expressed as a dollar amount, a percentage of the list price or a list by category of reasonable closing costs and other expenses that the servicer will permit to be deducted from the gross sale proceeds.
  • The amount of the real estate commission that may be paid, not to exceed six percent of the contract sales price, and when applicable, notification that the servicer retained a contractor to assist the listing broker with the transaction along with the payment amount (expressed as a fixed dollar amount or percentage of the contract sales price) if paid from sale proceeds.
  • A statement by the borrower authorizing the servicer to communicate the borrower’s personal financial information to other parties (including Treasury and its agents) as necessary to complete the transaction.
  • Cancellation and contingency clauses that must be included in listing and sale agreements notifying prospective purchasers that the sale is subject to approval by the servicer and/or third parties.
  • Notice that the sale must represent an arm’s length transaction and that the purchaser may not sell the property within 90 calendar days of closing, including certification language regarding the arm’s length transaction that must be included in the sales contract.
  • An agreement that upon successful closing of a short sale acceptable to the servicer, the borrower will be released from all liability for repayment of the first mortgage debt.
  • An agreement that upon successful closing of a short sale acceptable to the servicer the borrower will be entitled to a relocation incentive of $3,000, which will be deducted from the gross sale proceeds at closing.
  • Notice that the servicer will allow a portion of gross sale proceeds to be paid to subordinate lien holders in exchange for release and full satisfaction of their liens. Notice that a short sale may have income tax consequences and/or may have a negative impact on the borrower’s credit score and a recommendation that the borrower seek professional advice regarding these matters.
  • The amount of the monthly mortgage payment, if any, that the borrower will be required to pay during the term of the SSA, which amount must not exceed 31 percent of the borrower’s monthly gross income.
  • An agreement that so long as the borrower performs in accordance with the terms of the SSA, the servicer will not complete a foreclosure sale.
  • Terms under which the SSA can be terminated.

Borrower Obligations

The borrower must sign and return the SSA within 14 calendar days from the SSA Effective Date along with a copy of the real estate broker listing agreement and information regarding any subordinate liens. In returning and signing the SSA the borrower agrees to:

  • Provide all information and sign documents required to verify program eligibility.
  • Cooperate with the listing broker to actively market the property and respond to servicer inquiries.
  • Maintain the interior and exterior of the property in a manner that facilitates marketability.
  • Work to clear any liens or other impediments to title that would prevent conveyance.
  • Make the monthly payment stipulated in the SSA, if applicable.

Reasons for Termination

During the term of the SSA, the servicer may terminate the SSA before its expiration due to any of the following events:

  • The borrower’s financial situation improves significantly, the borrower qualifies for a modification, or the borrower brings the account current or pays the mortgage in full.
  • The borrower or the listing broker fails to act in good faith in listing, marketing and/or closing the sale, or otherwise fails to abide by the terms of the SSA.
  • A significant change occurs to the property condition and/or value.
  • There is evidence of fraud or misrepresentation.
  • The borrower files for bankruptcy and the Bankruptcy Court declines to approve the SSA.
  • Litigation is initiated or threatened that could affect title to the property or interfere with a valid conveyance.
  • The borrower fails to make the monthly payment stipulated in the SSA, if applicable.

Offer Receipt and Response

Within three business days following receipt of an executed purchase offer, the borrower or the listing broker should deliver to the servicer a completed Request for Approval of Short Sale (RASS) describing the terms of the sale transaction. With the RASS, the borrower must submit to the servicer:

  • A copy of the executed sales contract and all addenda.
  • Buyer’ documentation of funds or buyer’ pre-approval or commitment letter on letterhead from a lender.
  • All information regarding the status of subordinate liens and/or negotiations with subordinate lien holders.

Approval or Disapproval of Sale

Within 10 business days of receipt of the RASS and all required attachments, the servicer must indicate its approval or disapproval of the proposed sale by signing the appropriate section of the RASS and mailing it to the borrower.

The servicer must approve a RASS if the net sale proceeds available for payment to the servicer equal or exceed the Minimum Net determined by the servicer prior to the execution or extension of the SSA and all other sales terms and conditions in the SSA have been met. Additionally, the servicer may not require, as a condition of approving a short sale, a reduction in the real estate commission below the commission stated in the SSA.

The servicer may require that the sale closing take place within a reasonable period following acceptance of the RASS, but in no event may the servicer require that a transaction close in less than 45 calendar days from the date of the sales contract without the consent of the borrower.