How HAMP Can Help You

HAMP (Home Affordability Modification Program) program and is designed to give homeowners additional alternatives to foreclosure in the form of a Short Sale or Deed-In-Lieu of Foreclosure (DIL). This program ends on December 31, 2012.

The idea behind HAMP was to encourage lenders and homeowners to engage in loan modification, enabling homeowners to remain in their homes under affordable mortgage conditions and avoid foreclosure.

HAMP applies only to participating lenders. A current list of lenders is available here.

Am I eligible for HAMP?

You must first meet the following basic eligibility requirements under HAMP:

  • You are the owner / occupier of the property (up to four units). If the property has more than one unit, you must occupy one unit.
  • Unpaid principal balance equal to or less than $729,750 (The principal amount increases with multiple units).
  • Hold a first lien mortgage that originated before January 1, 2009.
  • Total monthly mortgage payment exceeds 31% of monthly gross income.
  • Mortgage delinquent or default reasonably foreseeable.

If you meet these initial eligibility requirements, you will then need to work with your lender to determine whether you qualify under your lender's guidelines.

Once application is made, what happens?

Upon receipt of your application, your lender will determine whether to modify the loan.

Assuming modification is an option, you'll be offered a modification program on a trial basis. If you accept the plan and are successful in the trial period, a permanent modification is arranged.

Examples of modification plans:

  • Reductions in interest rates to as low as 2% to achieve the 31% threshold. If this isn't viable, other options include, in order of priority:
  • Extension of payment terms to up to 40 years.
  • Forbearance: deferring a portion of the principal, interest free, until the maturity of the loan. At maturity (end of term, sale or refinance), a balloon payment would be required to pay the deferred principal.
  • Forgiveness of part of the principal.

If a HAMP loan modification is unsuccessful or unavailable to you, you still may be able to participate in HAFA.

How HAFA Can Help You

HAFA is an expansion to HAMP and centers on offering you a Short Sale or Deed-In-Lieu of Foreclosure (DIL) alternative to foreclosure, and streamlines the process in order to provide timely solutions to consumers who are unable to keep their homes.

This program ends on December 31, 2012 at which time all HAFA eligible Short Sale Agreements must be executed between the consumer and the lender.

Like HAMP, HAFA applies only to participating lenders. A current list of lenders is available online here.

The benefits of HAFA for homeowners:

  • Offers incentive based options to foreclosure.
  • Up to $3000 borrower relocation assistance.
  • Provides for Short Sale and DIL options to avoid foreclosure when loan modification is unsuccessful.
  • Total debt relief: proceeds through a HAFA short sale must be deemed to satisfy the homeowner's debt obligation in its entirety with no investor recourse for deficiency.
  • Provides homeowners with time to successfully sell their homes and avoid foreclosure. The minimum 120 day sales window and 45 day close of escrow timeframes allow consumers to adequately market their properties and obtain viable offers to purchase, thus minimizing the chances of foreclosure.

Am I eligible for HAFA?

Eligibility criteria for HAFA is the same as HAMP:

  • Principal residence (non-investment or secondary/vacation home)
  • First lien before 1/1/09
  • Default or documented imminent default
  • Monthly payments in excess of 31% of gross income
  • Principal balance equal to or less than $729,750 (incremental increases for multiple units)

AND either:

  • Didn't qualify for a HAMP trial period plan OR
  • Didn't successfully complete the trial period (missed 3 payments during the trial) OR
  • Was delinquent under a modification (missed two payments in a row) OR
  • Requests a short sale or DIL

The components of HAFA:

Stays Foreclosure Process

Once you're being evaluated for HAFA eligibility or participating in the HAFA sales process, all foreclosure proceedings must be stayed, that is the lender must put all foreclosure proceedings on hold. While foreclosure may be initiated, no proceedings may continue to complete the sale while the HAFA process is underway.

A Standardized Short Sale Process

HAFA uses the standardized processes, documents, timeframes and deadlines as described below.

Waivers of Deficiency

Lenders participating in HAFA must accept the sale proceeds from a short sale as full payment of the outstanding loan. The lender must waive all deficiencies and judgments to collect the difference between the sales proceeds and the principal balance of the loan.

Financial incentives

The government offers financial incentives to homeowners, lenders, and investors for participation in HAFA.

  • Up to $3000 borrower relocation assistance
  • $1500 for lenders to cover administrative and processing costs
  • Investors are offered up to $2000 match for investors for allowing a total of up to $6000 in short sale proceeds to be distributed to subordinate lien holders

What are the HAFA Short Sale procedure guidelines?

HAFA requires that lenders and consumers abide by strict timelines regarding all phases of the Short Sale process, from HAFA eligibility through close of escrow. The following summarizes the timeline and marketing requirements that participants must adhere to:

  • A lender must consider a consumer for HAFA eligibility within 30 days if the consumer is ineligible under HAMP or if the homeowner (you) proactively requests to be considered for a Short Sale or DIL.
  • Homeowners have 14 days to respond to a notification of eligibility in order to allow the lender to meet its 30 day response deadline.
  • The lender determines whether to issue a Short Sale Agreement (SSA) to the consumer based upon its evaluation of the investment, including appraisal.
  • Once a Short Sale Agreement (SSA) is signed, the consumer must be given at least 120 days to sell the home, during which time any foreclosure proceedings continue to be stayed.
  • Once a purchase offer is executed, the consumer has 3 business days to submit a Request for Approval of Short Sale (RASS) to the lender.
  • The lender has 10 days from receipt of the RASS to approve or deny the request and notify the consumer.
  • The lender must allow for at least a 45 day close of escrow period from the date of contract execution, unless the consumer agrees to a reduced time frame.
  • Upon closing, a lender must follow state law in determining when to release the first mortgage lien following receipt of the sales proceeds or receipt of the DIL. Again, investors must waive all rights to any deficiencies between the proceeds and the loan amount.

Before proceeding with any of the programs available to homeowners, please consult an attorney and a tax professional in order to understand the legal and tax implications of proceeding with a Short Sale or DIL. ZipRealty Agents cannot provide any legal and tax analysis and advice.