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:
- Supplemental Directive 09-09 - The actual HAFA directive
- The Mortgage Forgiveness Debt Relief Act and Debt Cancellation - IRS rules on short sales
- HAFA brochure - new from NAR
- Text only version of the brochure
- www.realtor.org/shortsales - more information on HAFA and more detailed FAQs
- "Short Sales" tab - all the info we have posted on short sales on the KCM Blog.