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Craig Greene: Home Affordable Foreclosure Alternatives

The new federal program streamlines short sales for people unable to keep their homes

Trying to reduce the rising number of foreclosures in the United States, the Treasury Department introduced a new federal program that makes it easier to process a short sale for people unable to keep their homes.

Home Affordable Foreclosure Alternatives program streamlines the process for doing a short sale or deed-in-lieu of foreclosure for distressed homeowners who do not qualify for a federal home loan modification through the Home Affordable Modification Program or have missed consecutive payments after a modification.

The HAFA program started April 5 and ends Dec. 31, 2012. Federal rules require servicers participating in HAMP to implement HAFA. The new program also requires borrowers to be released fully from future liabilities related to their first mortgage, including cash contributions, promissory notes and deficiency judgments.

Participation in HAFA can’t save homeowners from losing their property, but it can eliminate the effects of a foreclosure on their credit.

Financial incentives for program participation include a $1,000 servicing bonus for lenders and a $1,500 relocation bonus for displaced homeowners. Lenders of other subordinate liens (e.g., HELOCs) may be allowed to keep a limited portion of the proceeds (up to $3,000 each) of a short sale, with the first-lien lender’s approval.

HAFA is designed for homeowners who have applied to HAMP for assistance but have had no success with their loan modification program. To participate in HAFA, homeowners must still meet HAMP’s eligibility criteria: home is principal residence; first-lien mortgage is in delinquency or default is reasonably foreseeable; loan closed before Jan. 1, 2009; unpaid balance is less than $729,750; and the mortgage payment is more than 31 percent of gross income.

Click here for more information on HAFA.

— Craig Greene is a senior loan officer at Prospect Mortgage, 3916 State St., Suite 100, Santa Barbara 93105. He can be reached at .(JavaScript must be enabled to view this email address) or 805.898.4211.

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