Understanding HAFA

New Alternatives to Foreclosure

 United States Foreclosure Law

What is HAFA?

The Home Affordable Foreclosure Alternatives (HAFA) Program is a government-sponsored initiative overseen by the US Treasury Department and administered by Fannie Mae assisting all Home Affordable Modification Program (HAMP)-eligible homeowners in avoiding foreclosure, specifically through short sales or deeds-in-lieu of foreclosure.1 HAFA was announced on November 30, 2009 in a HAMP Update titled Introducing the Home Affordable Foreclosure Alternatives Program.

 

HAFA directs lenders to assist eligible homeowners in quickly and effectively implementing short sales or deeds-in-lieu by providing financial incentives to lenders that carry out foreclosure alternatives through the program's guidelines set forth in Supplemental Directive 09-09 Revised (revised March 26, 2010).3 The program was introduced in part with the intent to remove the stigma from short sales and help keep communities from being destroyed through massive foreclosures. HAFA in its current state is only applicable to conventional-type, non-Governmental Serviced Enterprises (non-GSE) mortgages and therefore does not apply to loans owned or guaranteed by Fannie Mae or Freddie Mac.4 These organizations may have plans to release their own versions of HAFA.

 

Details of HAFA

HAFA was introduced to simplify and streamline the short sale process. HAFA accomplishes this in the following ways:

  • Compliments HAMP by providing viable alternatives for borrowers who are HAMP-eligible
  • Uses standard processes, documents and timeframes
  • Provides financial incentives to borrowers, servicers and investors
  • Requires that borrowers be fully released from future liability for the debt
  • 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 agreement1

HAFA provides financial incentives as follows:

  • Homeowners qualify for $3,000 (updated March 26, 2010; was previously $1,500) in Borrower Relocation Assistance after a short sale or deed-in-lieu has been completed (may classify as taxable income in some cases2)
  • Financial incentives for servicers participating in the program include up to $1,500 (updated March 26, 2010; was previously $1,000) servicing bonus upon completion of a short sale or deed-in-lieu
  • Financial incentives for investors include up to $2,000 (updated March 26, 2010; was previously $1,000) for those who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis3
  • Lenders pay all servicing fees — homeowners have no out-of-pocket expenses4

There are two additional documents which provide detailed technical information on data related to HAFA and the HAFA reporting procedures for servicers:

  • HAFA Data Elements (Exhibit D) is a series of tables detailing specific reporting procedure data for servicers. It is available at the end of Supplemental Directive 09-09 Revised. This is a document for servicers
  • The HAFA Data Dictionary is a spreadsheet in Excel format coordinating with HAFA Data Elements (Exhibit D) that catalogues all of the data elements and associated metadata for the program, including the names, definitions, allowable values, and data types. It also defines the functional areas where the data elements are being used.5 This is a document for servicers

For more information on servicer reporting procedures and requirements, see "Reporting Requirements" on page 14 in Supplemental Directive 09-09 Revised.

 

Who is Eligible for HAFA?

Most homeowners facing financial hardship are eligible. As a rule, if a homeowner is eligible for HAMP but cannot pay the mortgage, then he or she is eligible for an assisted short sale through HAFA. However, loans owned or guaranteed by Fannie Mae or Freddie Mac do not qualify. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days if the borrower has met one or more of the following criteria1:

  • Does not qualify for a HAMP Trial Period Plan
  • Does not successfully complete a HAMP Trial Period Plan
  • Is delinquent on a HAMP modification by missing at least two consecutive payments
  • Requests a short sale or deed-in-lieu2

For a loan to qualify, it 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 $729,750
  • The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income (as defined in HAMP Supplemental Directive 09-013)
  • The mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac

How to Apply for HAFA

Homeowners interested in utilizing foreclosure alternatives under HAFA are instructed to contact their lender if they meet the eligibility requirements and inform them of their desire to participate. Homeowners unsure of whether or not they meet eligibility requirements should contact a CDPE near them.1

After April 5, 2010 — when HAFA activates — participating lenders should preemptively contact their eligible borrowers within 30 days, either after they meet eligibility requirements or after April 5, 2010. Eligible homeowners will be sent, either preemptively or by request, a Short Sale Agreement that will outline the terms and conditions of a short sale specific to the homeowner.

Homeowners and real estate professionals are encouraged to examine the following documents (updated March 26, 2010) important to the short sale process:

Homeowners and real estate professionals interested in seeking solutions through a deed-in-lieu of foreclosure should examine the following HAFA form (updated March 26, 2010):

 

FAQ - For Homeowners

You may have heard about HAFA on the news or from friends and probably have some questions about what it is, how it works, and how it can save you from the financial ruin brought on by a foreclosure. Here are some answers you may find helpful:

What does HAFA stand for?
Also known as the "April Program," HAFA stands for Home Affordable Foreclosure Alternatives. It's a brand-new government program that began on April 5, 2010, aimed at streamlining and incentivizing alternatives to foreclosure. Under HAFA, participating banks must work with you to help you avoid foreclosure.1
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What are the "Alternatives" in HAFA?
HAFA provides two alternatives that will allow you to avoid foreclosure:
  • Short Sale – If you owe more on your home than it is now worth, a short sale will help you sell your home and save yourself from financial ruin. According to HAFA, a real estate agent must be involved in this process. Agents with the CDPE designation are specially trained to help you with a short sale.
  • Deed-In-Lieu – This is where the bank accepts the deed of your home instead of ("in-lieu of") foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.
HAFA also provides up to $3,000 in Borrower Relocation Assistance to help you transition beyond a short sale or deed-in-lieu of foreclosure.2
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Why should I consider a HAFA short sale?
HAFA sets distinct guidelines and incentives for banks and lending companies so that you will know whether or not you can complete a short sale. One of the common myths about short sales is that they take forever to complete. HAFA makes sure that short sales happen more quickly by streamlining the short sale process.
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How is HAFA different from a short sale?
The main issue with traditional short sales was that they took too long, and it was difficult to keep buyers interested in the process. HAFA is a program designed to speed up the short sale process and even gives banks incentives for each short sale they do.3,4 Also, after completing a HAFA short sale, you may be given up to $3,000 in Borrower Relocation Assistance to help you transition. During a non-HAFA short sale, there is no government incentive for banks to help you.
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Do I have to hire a real estate professional for a HAFA short sale?
Yes, but it doesn't cost you anything.5 Under HAFA, the real estate professional's fees may be deducted from the sale proceeds.6 It is a requirement of a HAFA short sale that you work with a real estate professional to help you through the process.7 CDPE-designated agents understand this process, and are located throughout the country. Find a CDPE in your area today to help you get started.
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How do I get started?
Your first step should be to contact an educated real estate professional in your area. An agent can walk you through the HAFA process, determine your eligibility, and provide you with the best solutions available for your particular circumstances.
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How do I qualify?
Most homeowners facing financial hardship can qualify for HAFA. If you applied for a HAMP Trial Period Plan but did not qualify, or were unable to complete the Trial Period Plan, you are definitely eligible for HAFA.8 If you are unsure about your situation, contact a CDPE in your area immediately.
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What's in it for me?
HAFA is the only program that gives you cash for avoiding foreclosure through a short sale or deed-in-lieu of foreclosure. If you complete a short sale or deed-in-lieu, then up to $3,000 in Borrower Relocation Assistance may be available to aid in your transition.9 This program seeks to ensure that no one will be left high-and-dry if they cannot afford their home. The biggest gain of HAFA, however, is that it helps you get your life back if you feel like there are no other solutions when faced with foreclosure.
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How long does the process take?
HAFA speeds up the short sale process by putting in place distinct timelines that the banks — and you — must follow. Each step of the process has a defined amount of days in which it must happen. This keeps everyone on track. The longest minimal time expected in the HAFA short sale process is five months.10 However, 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 the requirements of the investor.11 Servicers can extend HAFA timeframes as necessary to accommodate delays in obtaining court approvals or receiving any periodic payment when they are made to a trustee.12 Back to Top

What is the April Program?
HAFA is commonly referred to as the April Program.
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HAFA Scams
There are many people out there trying to scam homeowners by requesting up-front fees for HAFA short sales. This is fraud. A CDPE-designated agent will never ask you for money. MakingHomeAffordable.gov (MHA) provides the following guidelines:
  • Beware of anyone who asks you to pay a fee in exchange for counseling service or modification of a delinquent loan.
  • Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes.
  • Beware of people who pressure you to sign papers immediately, or who try to convince you that they can "save" your home if you sign paperwork or transfer over the deed to your house.
  • Never make a mortgage payment to anyone other than your mortgage company without their approval.
  • Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
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What is a CDPE?
A CDPE, or Certified Distressed Property Expert, is a real estate professional who has undergone specialized training in foreclosure avoidance options, specifically short sales. The education a CDPE receives is based 100% on helping homeowners avoid foreclosure and assisting them through this difficult and oftentimes confusing process. If you are facing a financial hardship and may not be able to make payments on your home, and would like to know more about alternatives to foreclosure such as HAFA, contact a CDPE today.
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What is foreclosure?
If you are in a financial hardship or cannot make payments on your home, the bank can take your home away from you through a foreclosure, which leaves your credit horribly damaged, your security clearance compromised (if applicable), challenges your present and future employment, and you may still owe money to the bank. It's a nightmare situation that has been happening to millions of Americans. HAFA has been created to provide alternatives to foreclosure, and CDPE-designated agents are here to help.
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What are the tax considerations of a HAFA short sale or deed-in-lieu?
The difference between the remaining amount of principal owed and the amount that the servicer receivesfrom the sale must be reported to the Internal Revenue Service (IRS) on Form 1099C, as debt forgiveness. In some cases, debt forgiveness could be taxed as income. The $3,000 Borrower Relocation Assistance may also be reported as income.13 A short sale may have income tax consequences and/or may have a derogatory impact on your credit score.14 You should contact the IRS or your tax preparer to determine if you may have any tax liability.

In the case of a deed-in-lieu, the difference between the remaining amount of principal you owe and thecurrent market value of the property must be reported to the Internal Revenue Service (IRS) on Form 1099‐C as debt forgiveness. In some cases, debt forgiveness could be taxed as income. The $3,000 Borrower Relocation Assistance may also be reported as income.15 You should contact the IRS or your tax preparer to determine if you may have any tax liability.
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Why would banks want to participate in HAFA?
Foreclosures are costly and expensive for banks. When a bank forecloses on a home, they become responsible for selling it. It's difficult for banks to sell foreclosed homes (banks are not in the business of buying or selling homes). HAFA provides a streamlined set of guidelines for banks and homeowners to do short sales—the best alternative to a foreclosure. Additionally, HAFA provides financial incentives to banks to participate in HAFA.15
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Last updated: 21 April 2010

Sources:

  1. Making Home Affordable. "Home Affordable Foreclosure Alternatives Program: Overview" (2010): https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html
    • Updated March 26, 2010
  2. Making Home Affordable. Supplemental Directive 09-09 Revised "Incentive Compensation" p. 12 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
    • Updated March 26, 2010
  3. Ibid. p. 13
  4. Ibid. "General Terms and Conditions" p. 11
  5. Ibid. "Borrower Fees" p. 12
  6. Making Home Affordable. Short Sale Agreement (Exhibit A) p. 1 (2010): http://www.hmpadmin.co/portal/docs/hafa/hafaletters_ssagreement.doc
    • Updated March 26, 2010
  7. Making Home Affordable. Supplemental Directive 09-09 Revised "Short Sale Agreement" p. 7 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
  8. Ibid. "HAFA Consideration" p. 3
  9. Ibid. "Incentive Compensation" p. 12
  10. Five months was calculated by adding: 30 days servicer contact time, plus 120 days from the time of signing the Short Sale Agreement to equal 150 days — or five months
    • See: Making Home Affordable. Supplemental Directive 09-09 Revised (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf for detailed information
  11. Ibid. "Short Sale" p. 7
  12. Ibid. p. 6
  13. Short Sale Agreement (Exhibit A) "Additional Information" p. 3 (2010): http://www.hmpadmin.co/portal/docs/hafa/hafaletters_ssagreement.doc
    • Updated March 26, 2010
  14. Making Home Affordable.Supplemental Directive 09-09 Revised "Short Sale Agreement" p. 8 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
  15. Deed-in-Lieu Agreement (Exhibit C) "Terms and Conditions" p. 2 (2010): https://www.hmpadmin.com/portal/docs/hafa/hafaletters_dilagreement.doc
    • Updated March 26, 2010
  16. Making Home Affordable. Supplemental Directive 09-09 Revised "Incentive Compensation" p. 12 (2010): https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
    • Updated March 26, 2010