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A Short Sale on the New HAFA Program


The new Home Affordable Foreclosure Alternative (HAFA) program is rapidly approaching. As of April 5, 2010 the new guidelines for short sales will be in effect. Everyone should be aware of the changes and understand why this will have a tremendous impact on the real estate market throughout 2010.

Today, I want to talk about why this program is necessary, how it will work and the affect it will have on families who are struggling to pay their mortgage in today’s economic environment.

Why the need for HAFA?

More and more families are unable to keep up with their mortgage payments. Below is a table from LPS’s Mortgage Monitor presentation showing the evolution of this situation:

As we can see there are 7.4 million homeowners who are at least one month behind on their mortgage payments. A certain percentage of those families will never be able to catch up. We know from the chart that 2.9 million are at least 90 days behind. According to a study by Amherst Securities, less than one percent of those homeowners will catch up. That could lead to millions of homes going into foreclosure. The short sale process is a much better alternative.

Why is a ‘short sale’ better than a foreclosure?

For the family: In a foreclosure, the bank will determine when the borrower will ‘be removed’ from the home. In a short sale the borrower will work with the bank to determine when the new purchaser will be moving in. This allows them to leave the home with dignity.

If a family negotiates a short sale, they will be able to purchase a home again usually within 2-3 years. If they allow the home to go to foreclosure, they will not be able to purchase again for approximately 5-7 years.

In a foreclosure, the borrower could be liable for the difference between the mortgage amount and what the bank ultimately sells the house for. With the new HAFA program, the bank agrees not to go after the borrower for this deficiency judgment.

For the neighborhood: A foreclosure in many cases creates a vacant home because the homeowner, not having a set date, decides to leave. Vacant homes create all types of stress in a neighborhood, from deferred maintenance to crime. The Center for Responsible Lending reports that the value of homes surrounding a foreclosure is dramatically impacted. Here is what they say will be the impact in my home state of New York:

U.S. lost home equity wealth due to nearby foreclosures, 2009-2012:  $1.9 trillion

Statewide lost home equity wealth due to nearby foreclosures, 2009-2012:  $241.7 billion

Number of homes in state experiencing foreclosure-related decline:  6,420,239

Average loss per home affected in state: $37,649

To find out the impact in your state, you can click here.

How do I find out more about HAFA?

Here are several links that should help:

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About Steve Harney

Steve Harney is a residential real estate expert who specializes in market trends and authors a monthly informational presentation for top real estate professionals titled, "Keeping Current Matters" (KCM). Steve is often quoted in major news sources such as The U.S. News & World Report, MSN Money, The Chicago Tribune and The Los Angeles Times. He has received the great honor of being recognized as one of the 100 Most Influential Leaders in Real Estate by Inman News and one of the 200 Most Powerful People in Residential Real Estate by the Swanepoel Organization.

5 Responses to “A Short Sale on the New HAFA Program”

  1. Charles D'Alessandro March 26, 2010 at 8:29 am # Reply

    Thank you for sharing this information. There is a lot of confusion on the subject of short sales we need blogs like kcmblog.com you defiantly keep what matters in the forefront. Thank You Steve.

  2. Short Sale Software March 26, 2010 at 12:38 pm # Reply

    Steve,

    The benefits you list here apply to short sales in general, nothing specific to HAFA. How do you think HAFA will help the situation beyond the standard shorts ale process?

    I'm hearing a lot of negative feedback on the HAFA program in general, which I wrote about in my own blog. Specifically, the additional paperwork, unrealistic time frames, pre-set margins for lenders, exclusions for quick-turn investors, and HAMP eligibility (which itself underperformed significantly against government projections) requirements will all limit the true usefulness of the program.

  3. Steve Harney March 28, 2010 at 12:24 pm # Reply

    @Charles -
    Thank you for the kind words.

    @Short Sale Software -
    Great point! What we discussed does generally apply to the vast majority of short sales with one exception. The bank is required to waive the deficiency judgement in the HAFA program. In short sales being done today many banks are not doing this.
    I read your blog post on the subject and found it to be very imformative. One thing though. I don't believe HAFA is trying to 'streamline' the process (as you mention in your blog the application is over 10 pages long). I believe HAFA will go a long way in 'standardizing' the process. The biggest challenge today is that the people (agents, lawyers, 3rd party companies, etc.) communicating with the servicing companies can get several different answers/requirements to the same challenge. HAFA should help.

    Will the program be limited? Yes.
    Is it a magic pill? No.
    Will it have all the challenges of any other government program? Of course.
    Will it dramatically increase the number of short sales completed in 2010? I believe so.

  4. Glenn Batten March 30, 2010 at 6:45 pm # Reply

    I have two short sales approved with closings pending. Both closings will take place after April 5. Will these "pipeline" cases benefit from the HAFA provisions or do they go to closing outside HAFA? The main issue is whether these borrowers will be immune from the possibility of a deficiency judgment?

    Another question is: Do the HAFA provisions only apply to cases initiated after April 5?

    Hope someone can help with answers.

    • Steve Harney April 3, 2010 at 4:30 pm # Reply

      Glenn,
      Let me help with both issues. First, I do not believe anything in the 'pipeline' will be converted to the HAFA guidelines. I don't know if your two borrowers would even qualify for HAFA. In regard to the deficiency judgement, in all HAFA cases it must be waived. That does not mean that it can't be waived in a non-HAFA case. Many times the bank will waive it. That should be part of the negotiation of the short sale. Hope this helped.

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