With the introduction of the Home Affordable Foreclosure Alternatives Program (HAFA) on April 5th, new rules and guidelines have come up for the lenders. This new program is an extension of the HAMP (Home Affordable Modification Program) and will in turn help the borrowers further in safeguarding their property against foreclosures.

Let’s take a look at some of the specifics of the HAFA program:

1. Hardship information - The financial hardship information provided by the borrower under HAMP will be taken into account while considering him/her for this program.
2. Pre-approved short sale terms - Under this program, the borrowers will receive pre-approved short sale terms. They would receive these terms and conditions prior to their listing of the property with a real estate agent.
3. Future liability - The borrowers will be released from the future liability in regards to the loan. The lender will not be able to come after the borrower for any kind of deficiency judgment or cash contribution.
4. Financial incentives - The HAFA program provides financial incentives for servicers to cover administrative and processing needs. It also offers financial incentives including $3,000 for borrower relocation assistance.
5. Participating servicers - All the servicers participating in HAMP to will have to implement HAFA in accordance with their own written policy. However, the guidelines should be consistent with investor guidelines
6. Tenure of the program - The HAFA program comes to an end on December. 31st, 2010.

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In a recent development, the Mortgage Bankers Association (MBA), and members including Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N), has proposed a new forbearance plan for the jobless homeowners. Some of the other companies which helped MBA in developing this proposal are Citigroup Inc’s (C.N) CitiMortgage, American Home Mortgage, SunTrust, etc. The proposal has been placed in front of the top U.S. officials. The Treasury has also been contacted for credit to support the plan.

Why forbearance for unemployed?
It has been found that due to job loss, a large number of borrowers are unable to qualify for the relief programs like HAMP and HARP offered by the government. Thus, the Mortgage Bankers Association has come up with the proposal of forbearance for unemployed.

What could the unemployed expect under this plan?
Any unemployed borrower will get forbearance for 90 days. The plan could be re-evaluated for two more periods depending upon the borrower’s financial situation. The borrowers would be re-evaluated for HAMP after the 9 months are over or when the borrower gets a job.

Why would loan servicers participate in this plan?
Participation in this program is voluntary. The MBA have requested the U.S. Treasury to initiate special loans to the companies that advance payments to investors during the forbearance period.

The MBA met with Treasury, White House and Department of Housing and Urban Development representatives in regards to this program. All the departments have accepts the proposal in a positive way and open mind.

With the crisis in the real estate market, the American dream of homeownership has come to an abrupt end. Lots of people have lost their homes in foreclosure and many more are delinquent on their mortgage payments. Most people are facing such a situation mainly due to job loss. However, there are some homeowners who can afford their mortgage but are struggling to make their payments.  Such borrowers are tempted to walk away from the property in order to make a fresh start.

However, walking away from property is not a very good option in my opinion as it would ultimately lead to foreclosure. Take a look as to how it can affect you:

Credit effects: If you walk away of the property, it will result into foreclosure. The lender would sell off the property to recover his dues. You would be responsible for paying the deficient amount. It will lower your credit score by 250 points and you won’t be able to get a loan for the next 3-4 years. Moreover, the foreclosure would remain on your credit report for the next 7 years.

Tax penalty: If your lender forgives the deficient mortgage balance resulting from the sale, then you will have to pay taxes for that forgiven amount. The balance amount would be considered as your income and the IRS will charge you the income tax. However, with the Mortgage Debt Relief Act in vogue, you won’t be liable for paying the taxes on the deficient amount from the sale of your primary residence if the debt was incurred between 2007 and 2012. After that, the taxes are planned to kick back in.

So, you must be thinking that there’s no respite. No one’s there to help you from this mortgage mess, isn’t it? However, that’s not the case. You can get help provided you take the right step at the right time. Just have a look:
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