Greetings neighbors,

As discussed in yesterday's post, "Distressed Home Owner? Check Out the New Alternative, HAFA", we introduced the Home Affordable Foreclosure Alternatives Program (HAFA) and listed the eligibility requirements for those who may not have heard of the program. Because of the complexity of the HAFA program, with 43 pages of guidelines and forms, here is a little more information on the newest alternative to home foreclosures.

Initially announced last year on May 14th, HAFA's guidance and standards forms were issued on November 30, 2009. The program's guidance and forms that were released last November only apply to loans owned or guaranteed by companies other than Fannie Mae or Freddie Mac. Both Fannie Mae and Freddie Mac will provide their own forms.

Implementing HAFA:

The guidance forms given to servicers to carry out the program are called Supplemental Directive 09-09. Every servicer taking part in HAMP (Home Affordable Modification Program) must also implement HAFA to correspond with their written policy, consistent with investor guidelines. Factors in the policy can include: the severity of the loss involved, local market conditions, the timing of pending foreclosure actions, and borrower motivation and cooperation.

In addition, the servicer will send a short sale agreement (SSA) to the borrower after determining the borrowers interest in a short sale and determining if the property qualifies. The SSA will educate the borrower on the process of the program as well as the conditions that apply. After contracting to sell the property, the borrower will then have 3 weeks to submit a "request for approval of short sale" or RASS to the servicer.

Other Important Info to Know Regarding HAFA:

-Borrowers interested in participating in the HAFA program can not sell to someone with whom they have a close or personal or business relationship with such as family.

-There is a possibility that the debt forgiven amount may be treated as income for tax purposes. However, under a law set to expire in 2012, the tax may not apply. If the amount of forgiven debt is less than the amount of debt used to acquire, construct, or rehabilitate a principal residence, the forgiven debt will not be taxed. Be sure to check with a tax advisor regarding this issue.

-The servicer is responsible for reporting to the credit reporting agencies that a settlement for the mortgage was reached for less than the full payment amount which will have a negative effect on credit scores.

-Borrowers may not re convey the property within 90 days after closing.

For more information on HAFA click  here.