In its continued effort to stem the tide of rising foreclosures, the government has attempted to come to the rescue again - this time with the letters "HAFA" emblazoned across his chest.

HAFA - the Home Affordable Foreclosure Alternatives Program - was recently instituted by the U.S. Treasury to supplement the government's existing Home Affordable Modification Program (MakingHomeAffordable.gov), for which very few homeowners seeking to restructure their mortgage loans have thus far been able to qualify or make their payments.

HAFA prevents foreclosure by providing incentives for loan servicers and eligible borrowers to engage in a short sale or deed in lieu foreclosure, says Monica Sloboda, an attorney with Morgan Miller Blair in Walnut Creek, Calif. With the former, the lender agrees to let the borrower list and sell the mortgaged property, with the understanding that the lender will collect less than what is owed on the loan and the borrower is released from any future debt liability. With the latter, the borrower voluntarily transfers ownership of the mortgaged property to the lender in full satisfaction of the total amount due on the first mortgage.

"Both options will save homeowners' credit and loan implications of a foreclosure, and it is a cost-conscious alternative for a lender," says Ethan Ewing of Bills.com, San Mateo, Calif.

Each of these foreclosure alternatives aids lenders, who can sidestep typically costly and lengthy foreclosure proceedings. They also safeguard the property by reducing the time it is empty and vulnerable to potential deterioration and possible vandalism.

Sloboda says HAFA's advantages are plentiful. Borrowers, for example, receive $1,500 in relocation expenses, while loan servicers receive $1,000. And the second lien holder gets up to $3,000 of the sale proceeds for releasing their liens.

Also, with HAFA, borrowers will have a clearer understanding of the right price to list their home at for a short sale, says Kathy Conley, housing specialist with GreenPath Debt Solutions, Farmington Hills, Mich. "And if a signed purchase agreement is obtained and submitted they will have an approval or disapproval within 10 business days - no more months of waiting."

To better understand HAFA's real world benefits, Sloboda suggested the following hypothetical:

"The Smiths are a family of four with a total gross income of $90,000 per year," she says. "They purchased their dream house in 2006 for $450,000 and their mortgage payments are $3,030 per month. Mr. Smith loses his job ... and the Smiths' total gross income is suddenly reduced to $40,000 per year."

Even with HAMP assistance to lower their monthly mortgage payments, "the Smiths will likely not be able to keep up," Sloboda says. "Their best alternative may be to sell their house. But in the current market, the Smiths may not be able to find a buyer willing to pay more than $330,000. If the Smiths need $355,000 to cover the balance of their mortgage, their real estate agent's fee and other closing costs, the Smiths would be left with a $25,000 shortfall. HAFA can help by allowing them to sell their house for less than they owe on it, or by transferring ownership of the house to their lender with a deed in lieu of foreclosure if they can't find a buyer, while being released from the remaining mortgage obligations and receiving $1,500 in relocation assistance."

HAFA stipulations apply, including the fact that borrowers must also be eligible for HAMP; the program doesn't apply to mortgages owned/guaranteed by Fannie Mae or Freddie Mac; the property must be the borrower's principal residence; and the borrower's total monthly mortgage payment must exceed 31 percent of his/her gross income. Additionally, the program takes effect on April 5, 2010 (although loan servicers may implement HAFA before then if certain requirements are met) and expires on Dec. 31, 2012.

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