HAFA to “Streamline” the Short Sale Process – Until 2012, That Is

While in general, when the government starts regulating real estate it tends to indicate coming trouble for real estate investors (just think “seasoning” and experience a cold chill), in the case of the federal government’s Home Affordable Foreclosure Alternatives (HAFA) the jury is still out. The regulations are designed to streamline short sale rules and provide incentives and encouragement for borrowers and lenders to work together, hopefully making the entire process less tedious for the homeowners and, theoretically, for the third parties like investors as well.

At first, it sounds pretty good. The seller has access to a preapproved list of short sale terms from the lender before they ever put the house on the market. This is great for the seller because they know what they are working with and do not necessarily need someone to hold their hand to get the thing done, right? Maybe. Let’s remember that these preapproved terms have not been negotiated by a third party (like an investor); they have been agreed upon between seller and lender, both of whom have a vested interest in keeping that sale amount high. After all the lender wants to recoup as much of the loss as possible, and the seller wants as little remaining debt as possible – especially since a number of lenders have started going after sellers who thought their short sale had put them in the clear. But for now, let’s continue to focus on how HAFA works rather than how real estate investors may feel about it.

In reality, HAFA may not actually speed things up all that much. In order to qualify for the program, the seller must first enter the Home Affordable Modification Program (HAMP) and attempt to modify their existing loan. HUD says that over 100 servicers are currently signed up to participate in HAMP, but as most investors are aware, most loan modifications are basically just lead-gen for a short sale that add 6 to 12 months to the process. In addition, a lot of motivated sellers are not going to make it through the HAMP part of HAFA anyway, because if they miss a payment during the qualification period – and remember, they’re already in trouble – or if they do not qualify for the loan mod, then they are out of luck with HAFA.

Basically, HAFA is probably a pretty well-intentioned piece of legislation. However, it does not appear that it will really impact the short sale market all that significantly in its present form, and it definitely is going to leave a lot of people out since the property has to be a principle residence, the mortgage has to be owned by Fannie or Freddie, the borrower has to be delinquent, but then cannot miss payments, and the housing payment must be more than 31 percent of gross household income. With all these stipulations in place, it appears that while HAFA may make the process more accessible in homeowners’ eyes – and that’s a good thing – it may not have a truly dramatic impact on the short sale aspect of today’s housing market.

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