On April 4, 2010 the United States federal government began implementation of the “Home Affordable Foreclosure Alternatives” (HAFA) program. This was promoted by the Obama Administration as a way to encourage short sales. In reality, it will not be effective and it’s usually worse for a homeowner who is facing a signficant hardship when compared to a traditional short sale. As one sees below, it is more beneficial for the bank than for the homeowner. A few key reasons are:
- Homeowners who likely were not making payments due to hardship must pay 31% of their gross income to participate in the program or agree to give their property to the bank by a ”deed in lieu” of foreclosure.
- The bank determines the sales price. Neither the homeowner nor their broker have any control or influence over pricing.
- The bank can force a deed in lieu if the property does not sell at IT’s price in 120 days, even if the property is not in foreclosure.
- Even if the program was good, it covers very few loans: not Fannie Mae, Freddie Mac, FHA and VA loans.
- It only affect a first mortgage/deed of trust. The homeowner is responsible for negotiation of their own junior liens (if any). The program allows up to 6% of each lien balance to be paid, with a maximum payment of $6,000 for ALL liens.
The homeowners’ benefit is a $3,000 incentive payment IF the sale closes. This presumably helps with moving costs.