The Federal Home Affordable Foreclosure Alternatives Program

The most recent government program to help homeowners facing foreclosure has been President Obama's Home Affordable Modification Program, also known as HAMP. Despite its initial failures, the government has just recently announced an expansion, called the Home Affordable Foreclosure Alternatives program (HAFA).

While HAMP was designed to assist borrowers in obtaining affordable loan modifications, the new plan is supposed to provide new guidelines for mortgage lenders and servicing companies for the short sale and deed in lieu of foreclosure process. Obviously, the HAMP plan was so effective in delaying foreclosure for a few months that now all of the people losing their homes again will just be giving them up.

The new directions provided by HAFA will supposedly streamline how banks proceed with short sales and deeds in lieu. These options are mainly used by homeowners who have little other choice than to give up on their properties and would rather not just walk away from them. Below are some of these new guidelines.

First, all homeowners must be evaluated under the guidelines of HAMP before being offered any of the plans under HAFA. This means that borrowers must first apply for a loan modification and will only be given the option of a short sale or deed in lieu if they are unable to qualify for a modification.

Under the Home Affordable Foreclosure Alternatives plan, short sales are allowed if pre-approval was granted before the house was listed on the open market. The homeowners will be released from the potential of a deficiency judgment, as well. These guidelines are meant so that servicing companies can no longer negotiate to have real estate commissions or other fees reduced on a short sale. Servicers can only negotiate commissions before a property is listed for sale.

An executed sales contract for a short sale between the buyer and seller must be submitted to the lender or servicer within three business days. The servicing company has ten business days to respond to the offer with either an approval or rejection. This may be significantly faster than the months-long process banks now use in reviewing short sales, but more lenders may be likely to turn down offers if there is not enough time to review them.

There are also net proceeds directions that lenders must follow. If a sale meets the minimum net proceeds required under the program, the offer must be accepted. As long as the bank is getting a certain percentage of its money, it must take the deal. Servicing companies and banks no longer have any say in whether they can accept such offers.

Servicers that participate in this program will also be required to create and follow written policy guidelines. These directives should state how it will offer homeowners alternatives to foreclosure under HAFA.

The HAFA program will go into effect on April 5, 2010.