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Home Foreclosure Alternative Program Providing New Opportunities

The latest attempt to fight an increasing foreclosure crisis is the Home Affordable Foreclosure Alternatives, also known simply as HAFA. The program attempts to bridge the gap where HAMP or Home Affordable Modification Program previously failed. The facts certainly appear to be dire; throughout the country many homeowners are so far behind on their mortgage or are upside down that a modification simply does not make good sense. HAFA attempts to provide an alternative option, whether it is a short sale, allowing homeowners to sell their home for less than they actually owe on it or a deed-in-lieu, which makes it possible for homeowners to simply hand over their homes to lenders in exchange for being absolved of the outstanding debt.

Historically, short sales have proven to quite difficult to accomplish, especially with numerous homeowners making requests of some of the bigger banks such as Bank of America, Wells Fargo and JPMorgan Chase. It can literally take months to approve a short sale. Banks must weigh whether it is in their best interest to accept a short sale or pursue foreclosure. Around the country, realtors are report lost commissions when buyers involved in such transactions lose patience and move on. Consequently, a short sale can sell for as much as a 15% discount because many buyers as well as their agents want to avoid the hassles.

HAFA attempts to rectify such problems by offering cash incentives to borrowers as well as lenders and loan servicers in order to push short sales through at a faster rate. It could be that such cash incentive payments may not be enough of an incentive to actually push a significant number of short sales through.

In a short sale, when a buyer makes an offer, that offer must be approved first by the homeowner. It is then sent on to the bank for approval. Typically, the sellers will list the home at a price as high as possible in order to try to get the necessary approval from the bank. Unfortunately, what often happens is that an overpriced short sale will become stale as buyers lose interest and move on to homes that are lower priced.

Since HAFA was introduced many realtors have noticed a dramatic change in the market. The prices of short sales have been slashed and consequently interested buyers are taking notice. The strategy does actually make sense. If you are a homeowner who is upside down on your mortgage, it could be in your best interest to lower the asking price to below what is actually owed on the property, take an offer and then send it on through. Since the president has made it known that he fully intended to request lenders to accept more short sales for the good of the country, many banks are hesitant to seem as though they are uncooperative and as a result are looking to fill a quota mandated by the government for short sales through the new program. There is certainly no guarantee that a bank will approve a short sale, but they definitely have more incentive to do so now than they did just a few months ago.

HAFA not only offers a streamlined process for handling deeds-in-lieu and short sales but also offers $1,000 incentives to banks that allow short sales as well as $1,500 bonus payable to homeowners to help them with the costs of relocation. Some financial experts have predicted that the program could save numerous homeowners from the possibility of foreclosure. There are eligibility guidelines that apply to the program, including a requirement that the property must be the principal residence of the borrower and the first mortgage must have been taken out prior to 2009. In addition, the unpaid balance of the loan must be less than $729,750 and the monthly payment must be more than 31% of the borrower’s gross monthly income. Finally, the mortgage cannot be currently in default or at risk of going into default in the foreseeable future.

Provided these eligibility requirements are met, homeowners will receive short sale terms pre-approved from their lender as well as the minimum acceptable requirements for the proceeds from the sale before the property can be listed for sale with a realtor. Homeowners are required under HAFA to be released from any liability in the future on the debt for their first mortgage. In some cases, this may also include subordinate debts, ensuring the homeowner will be completely free and clear of their home loan when the home is sold.



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