What is the Alternative to a Foreclosure?

With so many foreclosures happening across the country, the government needed to come up with a solution to help homeowners. There is now hope with HAFA. HAFA is, Home Affordable Foreclosure Alternatives Program. This program is designed to help eligible homeowners by pre-approving short sales before listing and releasing them from future liability of their mortgage debt.



The HAFA program was finalized and made public on April 5th, 2010. The only mortgages that qualify are any first lien mortgages that are not backed by Freddie Mac or Fannie Mae. They may or may not come up with an initiative of their own, but that is not yet determined.



The HAFA program also bases modifications of home loans up on the financial information they receive about the homeowner. There is a waterfall process that they use to be sure that they reach the debt to income target ratio of 31%. These steps go in the following order: 1) Capital Arrears, 2) Reduce Interest Rate, 3) Extend Loan Term, 4) Forbear Principal.



Capital Arrears means that they are looking at the accrued interest and other eligible expenses used to modify the loan amount. The second step is taken because they are looking to reduce that interest rate to reach the debt to income ratio target of 31%, and that includes your mortgage payment. The third step is Extend Loan Term. This step is taken when they cannot reduce the rate enough to reach the target of 31% for the debt to income ratio. Once they know that they can’t reach the target, they will then extend your loan term to a 40 year loan. Lastly, the Forbear Principal means that the borrower can try to work out an agreement with the servicer. This is done by reducing the principal amount owed on the loan, but then it would be due later as a balloon payment.