Update on new short sale rules

Everyone is tired of short sales because only about 20% ever close. Some lenders have started to automate short sales, which may help.

The newest thing in the short sale arena is a program starting in April 2010 that supposedly will simplify short sales. The new program is called HAFA (Home Affordable Foreclosure Alternatives). It is incredibly complicated (like most government programs) and it does not apply to Fannie Mae (FNMA) loans. FNMA loans account for about 55% of all mortgages.

This wonderful post summarizes the HAFA program very well. HAFA is a sister program to HAMP, which is the totally ineffective mess of a program that tries to help homeowners modify their mortgages. Loan modifications have been so unsuccessful that a homeowner has almost as good of a chance of winning the lottery as having his or her loan modified. In fact, before pursuing a short sale approval under HAFA, the homeowner has to first apply for, and not qualify for and be denied or not complete, a loan modification under HAMP (that shouldn’t be too hard since none of the modification programs work at all).

A lender that chooses to participate in the HAFA short sale program will be paid by the US government. Hopefully, this will be enough of an incentive to get lenders to participate in the short sale program.

Here are some good things about the HAFA short sale program:

1. The homeowner/seller can get “pre-approved” by the lender for a short sale.

2. The homeowner must be released from future liability.

3. Real estate commissions can’t be reduced by the lender.

4. Best of all, the program sets timelines for responses by the lender. Short sales so far have been slow moving death marches that average about 6 to 7 months to get an approval. The lender has 10 business days to respond to a short sale offer.

Some not so good things about HAFA:

1. Must first apply for HAMP loan modification (have fun with that… virtually none of these get approved).

2. Must be borrower’s primary residence, no investment properties.

3. Mortgage must be delinquent (some short sales are current).

4. Complicated program with 43 pages of instructions.

Overall, I would say that this is a step in the right direction and an attempt to bring order to the short sale maze.

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