The HAFA Program, What's in Store for Homeowners?

HAFA Plan, Prevent Foreclosures, Add More Homes to the Housing Inventory? Where's the Save

Will new the HAFA program help or hurt? It's unknown what affect it will have on our housing industry until we see how banks handle the "approved" short sale process. The HAFA, Home Affordable Foreclosure Alternatives Program takes effect on April 5, 2010.

The program is geared towards helping homeowners avoid foreclosure by giving servicers, sellers and junior lien holders incentives to short sale the homeowner's home. The main goal is to streamline these transactions into a short sale or deed-in-lieu of foreclosure when a homeowner is unable to keep their home under the HAMP, Home Affordable Modification Program.

I'm confused. In working in real estate and mortgage for over 12 years, I'm confused as to how this helps the homeowner. HAMP is an external program, independent of the servicer's in house loss mitigation department.

Will homeowners understand that if they fail the waterfall test. Below is an understanding of how the "Waterfall" process determines whether or not a loan is eligible for a loan modification under the HAMP program.

Capitalize accrued interest and other eligible expenses to determine the modified loan amount.
Reduce the interest rate to reach the 31% target housing debt-to-income ratio in increments of 0.125% subject to an interest rate floor of 2%.
If the 31% target housing ratio has not been reached, extend the term of the loan up to a maximum of 40 years.
If the 31% target housing ratio has not been reached, then reduce the principal through an agreement between the borrower and the servicer. This agreement (forbearance agreement) would require that the amount of principal reduction be set as a balloon payment at the end of the loan term or when the loan is otherwise paid off.

Okay, back to my confusion...

Will homeowners understand that they do not have to accept a fail from the HAMP program and move directly to liquidation. Will borrowers move to loss mitigation before or after the "HAFA Sell"?
Initially, I thought the any new programs introduced would be as an enhancement to the HAMP program since the ratio of borrowers to those applying for loan modifications are so low. I guess foreclosure alternative is supposed to help the homeowner. I think more homeowners will feel otherwise.

Which Loans Are Eligible?

The Home Affordable Foreclosure Alternative Program provides short sales guidelines for loans not owned or guaranteed by Fannie Mae or Freddie Mac (those agencies are expected to release their own, similar guidance). The following conditions also must be met:

The property is the borrower's principal residence.
The mortgage loan is a first lien mortgage originated on or before Jan. 1, 2009.
The mortgage is delinquent or default is reasonably foreseeable.
The current unpaid principal balance is equal to or less than $729,750.
The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.