RISMEDIA, March 25, 2010—Joe Moshe, Broker/Owner, Charles Rutenberg Realty, says the Home Affordable Foreclosure Alternatives (HAFA) program will help stabilize the residential real estate market by allowing the short sale process to move forward more easily. This, in turn, will benefit real estate agents as they perform more short sale closings and homeowners who are attempting to stave off foreclosure.
On April 5, 2010, HAFA, a part of the Home Affordability Modification Program (HAMP) which provides financial incentives to servicers and borrowers to lean toward short sales rather than foreclosures, will go into effect. The law will expire at the end of 2012.
“The Home Affordable Foreclosure Alternatives program is a great effort by the federal government to get the real estate market going again,” says Moshe. “However, we are leery of banks that use their own appraisers, who may not accurately report the true value of the property.”
Under HAFA, borrowers will be allowed to receive pre-approved short sale terms before listing the property, as well as $1,500 in relocation assistance. In addition, they will be fully released from any future liability for the first mortgage debt. In order for the borrower to be eligible for HAMP, it must be the principal residence, the first lien originated before 2009, the unpaid balance must not exceed $729,750 and the borrower’s total monthly payment exceeds 31% of their gross income.
The HAFA program prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement, up to 6%. In order to implement HAFA in accordance with their own written policy, the servicer must participate in HAMP and their policy must be consistent with investor guidelines.
HAFA also offers up to $1,000 in investor reimbursements for allowing up to $3,000 in short sale proceeds to be paid to subordinate lien holders. If a subordinate lien holder receives financial incentives from HAFA, they must agree not to pursue any deficiency judgments.
“With a more streamlined process for short sales now being put into place, we should see fewer foreclosures, helping to stabilize the housing market in the near future,” Moshe says. “The program will also allow our real estate agents to close more short sales without being at the mercy of the subordinate lenders and keep more of their commissions.”
In a short sale, a homeowner owes more than what their home is currently worth. To avoid foreclosure, the homeowner settles with the mortgage lender to accept less than what they owe on the property. As a result of this agreement, the seller is able to fend off foreclosure, the lender avoids taking on the burden of selling the property and the new buyer gets the property at a reduced price. Additionally, the seller will not be required to pay for the deficiency on the loan.
“Before HAMP and HAFA were introduced, the laws rewarded mortgage servicers that were looking to recover all their expenses on a foreclosure rather than opting for a loan modification or a short sale, which meant that the servicer would take a huge loss,” continues Moshe. “In the case of a pending short sale, the mortgage servicers were in charge of making decisions and it was obvious why they chose to foreclose over other alternatives.”