As a result of this distressed real estate market, many brokers are now fully immersed in the world of listing and selling short sale properties, and deal with distressed homeowners on a regular basis. Although the federal and state governments are aware of the challenges faced by homeowners, many in the real estate industry believe that not enough help is being given to distressed homeowners. However, it appears that the federal government is making strides, having created the Home Affordable Modification Program (“HAMP”) in early 2009 and the Home Affordable Foreclosure Alternatives Program (“HAFA”) in late 2009. This article will address both HAMP, which is currently in effect, and HAFA, which will officially go into effect in April 2010.
Home Affordable Modification Program
As you may know, the federal government created HAMP in 2009 in order to create opportunities for distressed homeowners to keep their homes through loan modifications. Although lenders are not required to participate in HAMP, the program provides those lenders who opt in with guidelines for qualifying homeowners for loan modifications. A homeowner may be eligible for a loan modification through HAMP if that homeowner’s total monthly loan payment exceeds 31% of his or her gross income, the mortgage is delinquent or the homeowner has a financial hardship, the first lien originated on or before January 1, 2009, the owner has an unpaid principal balance of no more than $729,750, and the property is the owner’s principal residence.
Homeowners who qualify under the guidelines may be eligible for loan modifications for their homes, with the ultimate goal of saving their homes from foreclosure. However, homeowners who are eligible under HAMP may not qualify for a loan modification itself, or may not be able to comply with the terms of a modification. In such event, the homeowner could face foreclosure, as the lender would unlikely consider, or be required to consider, further modification to the loan. The federal government has since altered HAMP to encourage lenders to consider additional alternatives to foreclosures, including short sales and deeds-in-lieu of foreclosure.
Home Affordable Foreclosure Alternatives Program
On November 30, 2009, the federal government created HAFA, which incentivizes lenders to consider short sales and deeds-in-lieu of foreclosure in situations where a homeowner is eligible under HAMP but is unable to obtain a loan modification or does not comply with the terms of a loan modification. The program uses a standardized process for short sale approval, including uniform documents and requisite timeframes within which to allow a homeowner to close a short sale prior to foreclosure proceedings. In addition, the program allows homeowners to obtain pre-approved short sales terms, prohibits servicers from requiring reductions in real estate commissions agreed upon in listing agreements, requires homeowners to be fully released from any future liability for the first mortgage and possibly a second mortgage, and provides financial incentives to both servicers for processing costs and to homeowners for relocation assistance. HAFA does not take effect until April 5, 2010, but some servicers may already be implementing it.
Although not all homeowners will be eligible to participate in HAMP and/or HAFA, others will be successful in avoiding foreclosure through a loan modification, short sale or deed-in-lieu. In such event, the homeowner may be able to avoid the possibility of future liability to the primary lender for any amounts that were “forgiven” through the loan modification, short sale or deed-in-lieu of foreclosure.
Resources for Distressed Homeowners and Licensees
As the HAMP and HAFA programs were created for homeowners, it is crucial that licensees become familiar with them. Licensees are often the first people that distressed homeowners speak with about the possibility of a short sale as an alternative to foreclosure. For this reason, licensees must be able to direct their clients or potential clients to resources that may assist them in making educated decisions. Such resources can and should include legal and tax advisors, free HUD-approved housing counselors, and websites for the HAMP and HAFA programs. Information on HUD-approved housing counselors and HAMP can be found at http://makinghomeaffordable.gov/. Detailed information on HAFA can be found at http://www.hmpadmin.com/ and through the HAMP website. Licensees should stay away from advising their clients as to whether they will qualify under HAMP or HAFA, and should instead refer them to the resources outlined above, preferably in writing.
In addition, licensees should familiarize themselves with HAFA in particular, as they may be involved in listing a short sale property on behalf of a homeowner who qualifies under the HAFA program. Licensees would be prudent to review the standardized documents for the program, and become familiar with the timelines and requirements. Such preparation will enable licensees to provide better service to their clients, and hopefully lead to smoother short sale transactions.
Furthermore, licensees may want to visit the National Association of REALTORS® website, which contains a wealth of information on both programs and how they impact licensees and their clients.
Although there are many homeowners who will not qualify for modifications or other alternatives to foreclosure through the HAMP and HAFA programs, there are others who will qualify and benefit from the assistance. This is a welcomed change for many, including those in the real estate industry who have sought consistency in dealing with distressed homeowners in our unusual real estate market.
This column contains general information only and must not be construed as legal advice.
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