Recent statistics show that 29% of all currently mortgaged homes have negative equity. Now, not all of these borrowers are facing a job loss or other financial crisis that might result in their losing their home to foreclosure, but many people who have been victims of the current recession are facing such challenges. One of the biggest obstacles for these borrowers is the ability to consummate a "short sale", a transaction in which their mortgage lender agrees to accept less than the current mortgage amount as payment in order for the home to be sold. While the cost of a lender foreclosing averages 18-22% of the property value, many lenders have been dragging their feet in approving short sales because of overwhelmed loss mitigation departments and policies that dictate an offer be in place before a short sale is considered. This often results in a process that takes months to consummate, frustrating sellers and turning off many potential buyers.

To take advantage of the new program, borrowers must be currently late or on the verge of delinquency and must demonstrate their financial hardship. They must also have attempted to modify their mortgage without success. The property must be their principal residence. Banks will be required to take action on a short sale request within 30 days  Loans that are owned or guaranteed by Fannie Mae or Freddie Mac are not automatically included in the program, though they will likely follow suit in short order.

Borrowers will be entitled to receive up to $3,000 in relocaton asistance and lenders can receive a $1,500 servicing bonus upon successful completion of the short sale transaction. Also an option is a deed-in-lieu of foreclosure, where the borrower signs over the home directly to the bank.

The biggest incentive to borrowers in this program is the ability to avoid the long-term negative effects of having a foreclosure on their credit report, as a short sale or "deed in lieu" will not have as significant a lasting effect. Furthemore, lenders will be prohibited from pursuing any collections of deficiency balances from the borrower.

Borrowers looking to take advantage of this program should contact their existing mortgage lender directly and request infomation on the HAFA mortgage program. Additional details can be found at https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html