Today is the deadline for participating banks and mortgage servicing companies to implement the Home Affordable Foreclosure Alternatives Program, otherwise known as HAFA. Starting today, the HAFA program may make a short sale (or deed-in-lieu of foreclosure) a much more viable option than ever before for homeowners who are "upside-down" on their homes. Will HAFA merely shine a ray of hope on the glut of short sale inventory or will it be a panacea for most short sales?
A short sale is a transaction in which the lender (or lenders) agree to
accept less than the mortgage amount owed by the homeowner, thus potentially enabling a homeowner to avoid foreclosure. The HAFA Program, which takes effect today, April 5 2010, and sunsets on December 31st 2012, provides the servicer, seller and junior lien holder incentives for short sale transactions and is designed to simplify and streamline use of short sales and deeds-in-lieu of foreclosure. The program reportedly covers banks and mortgage loan servicers handling more than 90% of all U.S. home mortgages.
The new HAFA program is critically important to solving several major challenges short sale transactions typically cause:
- Many Realtors are new to the short sale process, a problem which is compounded when lenders are understaffed or their staff is inexperienced or inadequately trained.Lack of universal processes & procedures: Until HAFA guidelines were established, both short-sale documents and processes were lender-specific, making it difficult and time-consuming for Realtors to become knowledgeable and efficient at handling short sale transactions.
- When more than one lender is involved, the complexity of negotiations rises. Second lienholders frequently hold up the transaction in an attempt to exert the largest possible payout in exchange for releasing their lien even though if the property went to foreclosure secondary lienholders collect absolutely nothing.
- Realtors frequently report that lenders are unresponsive, have lost documents thus requiring multiple submissions, provide inaccurate or unrealistic home value assessments, and cause long processing delays which result in buyers running out of patience and walking away.
HAFA is designed to address many of the challenges presented by short sales. The main provisions of HAFA are:
- HAFA complements HAMP by providing a viable alternative for the current homeowners who are HAMP-eligible but unable to keep their home.
- Uses borrower financial and hardship information already on file in connection with applications for loan modifications.
- Allows borrowers to receive pre-approved short sale terms prior to listing the property (including the minimum acceptable net proceeds).
- Requires borrowers to be released from future liability for the first mortgage debt (means no cash contribution, no promissory note, nor any deficiency judgment will be allowed).
- Uses standard processes, documents, and timeframes/deadlines.
- Provides financial incentives: $3K for borrower relocation assistance, $1,500 for servicers to cover administrative and processing costs, up to $2K for investors who allow a total of up to $6K in short sale proceeds to be distributed to subordinate lien holders, on a 1-for-3 matching basis.
- Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy consistent with investor guidelines including factors such as severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
The most important thing to realize about the new HAFA program is that Realtors will be able to negotiate much faster short sales than before due to new federal procedures and deadlines. This is a huge milestone that should make many short sales actual viable alternatives to non-distressed property which are almost always priced much higher. This should, in theory, dramatically increase the demand for short sale properties. As a result, it will be interesting to see whether prices of short sale properties stabilize (increase?) as a result of HAFA or, instead, whether it has the effect of putting downward pressure on the price of nearby non-distressed homes for sale. I suspect the former given that much of the uncertainty - and previously unacceptably long wait times - will virtually be eliminated with the advent of HAFA.
For more information check out the HAFA program overview and look up your lender in the list of HAFA participating servicers. To inquire about listing your home as a short sale please contact Lake & City Homes broker|owner Jolenta Averill at 608.628.9701. For a list of all short sales currently on the market, please visit and bookmark our Madison short sales page - it's updated every 3 hours, 24 hours a day!
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Jolenta Averill, Principal
Lake & City Homes Realty