On April 5, a new section will be added to the Home Affordable Modification Program (HAMP), called Home Affordable Foreclosure Alternatives (HAFA). HAFA offers incentives to lenders to allow underwater homeowners to short sell their homes or alternatively, allows a homeowner to turn is or her home and its title over to the lender, which is called deed in lieu of foreclosure.
Eligible homeowners are those who first sought an appraisal as a first step toward refinancing, but weren’t eligible, then discovered they were ineligible for loan modifications under HAMP. Other eligible homeowners are those who received temporary, rather than permanent modifications under HAMP, or those who missed two consecutive payments on their modified loans.
HAMP is different from HAFA because of the incentives offered to lenders and homeowners if they choose to take part in the program. If lenders allow a short sell, they are eligible to receive a $1,000 incentive, and if homeowners decide on a deed in lieu of foreclosure, they can receive a $1,500 relocation allowance.
There are many benefits to HAFA. In the event of a short sale, lenders can save the cost and time involved in a foreclosure. Short sales also put new families into homes that may remain empty during a foreclosure process, which could reduce the value of other homes in the neighborhood. Homeowners should also consider that a short sale has less of a negative impact on their credit rating than a foreclosure.
