Of the 3-4 Million eligible delinquent loans, 295,348 have received permanent modifications with another 1,214,805 in various stages of a trial plan according to Treasury Department's progress report in April. But as Laurie Goodman, senior managing director at Amherst Securities pointed out in her testimony before congress at the end of last year, the problem is "the program does not emphasize the re-qualification of the borrower." In other words, if even after the modification, the borrower is massively upside down, the borrower may still consciously decide to default again, which is exactly what is happening in many cases.
So common is this behavior that Corelogic, an industry giant in the field of real estate analytics, has created new software called WillCap in order to predict strategic default behavior. The software analyzes consumer credit, property information, loan product information and local real estate market profiles to determine whether it likely a borrower will continue to pay on a loan, based on the outcomes of the approximately 5M loans that were used as case studies.
In response to the fact that many borrowers that are at risk or in default either can not or will not continue to make their mortgage payments, Home Affordable Foreclosure Alternatives (HAFA) program was introduced in April of this year. HAFA is designed to encourage lenders to offer the alternatives of a short sale or a deed-in-lieu of foreclosure to borrowers otherwise eligible for HAMP.
So common is this behavior that Corelogic, an industry giant in the field of real estate analytics, has created new software called WillCap in order to predict strategic default behavior. The software analyzes consumer credit, property information, loan product information and local real estate market profiles to determine whether it likely a borrower will continue to pay on a loan, based on the outcomes of the approximately 5M loans that were used as case studies.
In response to the fact that many borrowers that are at risk or in default either can not or will not continue to make their mortgage payments, Home Affordable Foreclosure Alternatives (HAFA) program was introduced in April of this year. HAFA is designed to encourage lenders to offer the alternatives of a short sale or a deed-in-lieu of foreclosure to borrowers otherwise eligible for HAMP.
The structure basically works as follows:
1. Borrower can use the same package that was submitted for the HAMP program to qualify for HAFA.
2. Borrower can be pre-approved for short sale before even listing the property. This is significant because the uncertainty of the short sale approval process makes short sale properties extremely difficult to market.
3. Borrower's are fully released from future liability for the first mortgage debt (no cash contribution, promissory note or deficiency judgment is allowed). Does not apply to a second mortgage and therefore it is helpful to retain a law firm to negotiate a full release from the any other mortgages.
4. Provides up to $3000 in relocation money and $1500 to pay for services related to the application process.
1. Borrower can use the same package that was submitted for the HAMP program to qualify for HAFA.
2. Borrower can be pre-approved for short sale before even listing the property. This is significant because the uncertainty of the short sale approval process makes short sale properties extremely difficult to market.
3. Borrower's are fully released from future liability for the first mortgage debt (no cash contribution, promissory note or deficiency judgment is allowed). Does not apply to a second mortgage and therefore it is helpful to retain a law firm to negotiate a full release from the any other mortgages.
4. Provides up to $3000 in relocation money and $1500 to pay for services related to the application process.
When the only alternative is to move on, the HAFA program is intended to allow the borrower to do so with a clean slate.
By: Kwame J. Granderson
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