HAMP and HAFA - Short Sales on Steroids


Approximately 1 out 6 WA homeowners are upside down on their mortgages. That is, their current mortgage is greater than what their home is worth.

That is an uncomfortable situation. However, it is not devastating unless: (a) the homeowners lose their job and can no longer afford to make their monthly mortgage payment, or (b) they have to sell their home because of a job relocation.

The Federal government has initiated programs meant to assist homeowners in this situation. Both are summarized below.

HAMP – Home Affordable Modification Program (HAMP)

Lenders can redefine mortgage terms to help homeowners with conventional mortgage loans and avoid foreclosure. First, not all lenders participate in HAMP as it is voluntary. Second, there are sub-categories: one to refinance the existing mortgage, and the other to modify it. Third, there are criteria for eligibility.

Refinance – (1) Primary Residence? (2) Was the mortgage acquired by Fannie Mae or Freddie Mac? If homeowners don’t know (and why would they?!), they can check at the Federal government website (see next paragraph) (3) Are homeowners current on their mortgage payments? Current means not being late more than 30 days on any mortgage payment in the last 12 months (4) Is the homeowner upside down?

All four questions must result in a YES response. Otherwise, the homeowner is not eligible.

Modification – (1) Primary Residence? (2) Is the mortgage amount equal to or less than $729,750 (3) Are homeowners unable to continue making their mortgage payments? (4) Is the mortgage payment (including principal, interest, taxes, insurance and HOA dues, if applicable) more than 31% of the homeowners combined gross income?

All four questions must result in a YES response. Otherwise, the homeowner is not eligible.

Details about the HAMP are available at this website -->http://makinghomeaffordable.gov/ 

HAFA – Home Affordable Foreclosure Alternatives (HAFA) 

The HAFA, which is effective April 5, 2010, is designed for homeowners who have applied for assistance through HAMP but have had no success with their loan modification or refinance. To participate in HAFA, homeowners must still meet HAMP’s eligibility criteria as outlined above.

First, HAFA is voluntary. However, lenders who received Federal government funding (TARP money) are being strongly “encouraged” to participate. Yet, even those lenders are allowed to interpret the HAFA guidelines “in accordance with best business practices”.

Until after April 5, 2010 it is not possible to say with certainty how well the HAFA will be implemented. It intended highlights are:

  • Homeowner has 14 days to request HAFA assistance after being denied under HAMP
  • Lender has 14 days to accept the homeowner into the HAFA program. (Presumably, if denied, the homeowner could pursue a short sale under the “normal” short sale procedures)
  • Lender establishes the list price
  • Homeowner must work with a real estate agent and is allowed 120 days to obtain an offer
  • When a offer is submitted, the lender has 10 days to accept or reject the offer
  • When the transaction closes,
  1. the lender will receive $1,000 from the Federal government
  2. the homeowner will receive $1,500 from the Federal government
  3. the first lien holder agrees NOT to pursue collection of any shortage
  4. the second lien holder MAY agree not to pursue collection of any shortage
The complete set of instructions, including the required forms may be downloaded by clicking here -->https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

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