New Short Sale Process for Banks

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A little publicized program has been implemented to streamline the short sale process to prevent foreclosure and to assist home owners in the process. In 2009, the government rolled out the Home Affordable Modification Program (HAMP) which was intended to keep home owners in their houses through modification of their loan terms. It was thought that unfavorable loan conditions were the primary reason home owners were losing their homes to foreclosure and this effort was meant to curtail the number of foreclosures. Unfortunately, approximately half of the people who receive loan modification still lost their homes to foreclosure.

Due to the sheer volume of short sales and foreclosures, the inefficiencies of the banks made alternatives to foreclosure extremely difficult. The most recent measure to decrease the number of foreclosures is the Housing Affordable Foreclosure Alternatives (HAFA)

HAFA is intended to be a complementary service to HAMP and is supposed to allow borrowers to receive pre-approved short sales terms before the home is listed for sale, which has been a major problem for home owners seeking to sell their home at a loss to the bank. Providing a pre-approved amount that the bank will accept in a short sale will help short sales happen more quickly if the prices they offer are competitive with the market.

But will it work?

The results are yet to be seen, but the program is intended to streamline the short sale process by reusing financial information provided by borrowers who have requested loan modifications. It also utilizes standard processes, documents, and timeframes/deadlines for the lenders which has been a major obstacle to buyers purchasing short sales.

Another major obstacle is supposed to be removed through the HAFA program which requires that lenders release the borrower from future liability for the mortgage debt as well. The important thing to understand is that not all lenders are participating and not all borrowers qualify.

For the borrowers that do qualify, the program provides the following incentives:

$3,000 for borrower relocation assistance;
$1,500 for servicers to cover administrative and processing costs;
Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.

In order to qualify for HAFA the following minimum conditions must be met by the borrower:

· The property is the borrower's principal residence

· The mortgage loan is a first lien mortgage originated on or before January 1, 2009

· The mortgage is delinquent or default is reasonably foreseeable

· The current unpaid principal balance is equal to or less than $729,750

· The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income

· The mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac

The HAFA program took effect on April 5, 2010 and will be around until at least December 31, 2012.

To see the list of participating banks, visit: http://www.makinghomeaffordable.com/contact_servicer.html

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