As published in Scotsman Guide's Residential Edition, September 2010.
The U.S. Department of the Treasury's Home Affordable Foreclosure Alternatives (HAFA) program intends to make short sales more enticing for homeowners, homebuyers, lenders and others. The program should help reduce complaints about short sales' often-lengthy transaction times, unclear expectations and inconsistent processes.
Mortgage brokers who educate themselves and their clients about HAFA can use the program to build their business in the short-sale niche.
HAFA supplements the Home Affordable Modification Program (HAMP), designed to help troubled homeowners modify their mortgage payments, and offers help to borrowers who don't meet HAMP's requirements for a mortgage modification. The HAFA guidelines took effect this past April and are scheduled to run through 2012.
HAMP and HAFA are voluntary programs for which servicers must sign up. As of press time, the servicers enlisted accounted for 89 percent of outstanding mortgage debt nationwide.
Short sales occur when lenders agree to accept a purchase offer for less than the current borrowers' total amount owed to pay off a home. Many mortgage brokers have avoided working with short-sale purchases because of long response times from lenders or servicers and a lack of preapproved terms. Despite having willing sellers and buyers, many attempted short sales never materialize because lien-holders can't efficiently negotiate the sale. In response to substantially delayed time frames, potential sellers or buyers often walk away.
There are, however, several reasons HAFA should make short sales more enticing. Brokers who understand these can facilitate short sales, connect new buyers to purchase loans and establish an important niche in today's market.
Some of the HAFA enticements include:
Preapproved terms and required response times;
Less-severe credit damage when compared with foreclosure; and
$3,000 in moving expenses for sellers.
In addition, lenders or servicers can receive a $1,500 payment for administrative costs (or $2,200 when working with Fannie Mae or Freddie Mac loans), and investors can receive as much as $2,000 on a one-for-three matching basis for allowing junior lien-holders to be paid as much as $6,000. For each $3 an investor pays to a subordinate lien-holder, the investor will receive $1 of reimbursement.
Lien-holders and private mortgage insurers involved in HAFA short sales must waive their rights to collect any other contribution, promissory note or deficiency judgment. Despite this, the aforementioned incentives should make short sales more attractive and expedite the process.
Along with requiring preapproved terms from lenders or servicers, HAFA's expectations regarding payment amounts to junior-lien-holders -- and the government reimbursement provided to investors for making that payment -- probably will have the largest impact in improving short-sale success rates. Subordinate-lien-holders have been one of largest obstacles to productive and quick negotiations. They often make unreasonable demands and refuse to budge. Junior-lien-holders, however, still must approve short sales.
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