San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

The announcement of HAFA in April was supposed to change the way we do our business for those of us who do a lot of short sales.  Not because it was supposed to revolutionize the way short sales were done, but because it was going to be the Federal Government stepping in and trying to standardize the process of how to complete a short sale.  In the lawless world of short sales, that was like a cool breeze on a hot sticky day: very much welcomed.

Many naysayers poo poo’ed the program, saying it was never going to fly and that lenders would not abide by the terms because it was not in their favor.  But you know, there always will be naysayers whose job it is to simply criticize any new idea that comes along which challenges the status quo.

Yes, there are still glitches in the system and many employees of banks do not understand or have not been trained in HAFA and we get to deal with a high percentage of them who are not helpful.  However, an announcement made last night will resonate and have long term impact on the dynamics of the distressed properties marketplace, in my opinion.

Matt Vernon, the executive in charge of short sales and REOs at Bank of America (BofA) announced that institution will now focus on short sales to liquidate their assets before they get into foreclosure.  “We’re going to do everything possible to liquidate property prior to foreclosure,” Vernon said. “REO will still be available, but we will do everything we can to do short sales.”   This is wonderful news for consumers as their underwater properties can be disposed of without having to be forced into foreclosure and devastating their credits.  This is also good for banks because industry surveys have shown that nets proceeds to banks are significantly higher when short sales are utilized as compared to REOs.  BofA is of course is still in the business of making money and has chosen a profitable method, but this method also benefits the homeowners as well. And with all of the loan modifications applications out there, and the unfortunate reality is that a large percentage of those loan modifications will default and end up on the foreclosure circuit.

Mr. Vernon has spoken previously and have been pushing for the notion of short sales taking a more prominent role at BofA. BofA was suffering  from backlash on their Loan Origination business as a consequence of them developing a notorious reputation in the short community as being difficult to work with.  This move will be followed by other banks in my opinion, like airlines follow and match fares when one major player comes out and takes a stand.

HAFA may not have lived up to the expectation people had about its efficacy in making  short sales easier to handle or process, but what it has done is provided an environment where a big player like BofA can come out and concentrate on short sales as a major tool to unload their real estate portfolio.  This move on the part of BofA has now pushed short sales out of the niche market and pushed it into the mainstream, making it easier for consumers to get short sale approval, and hopefully quicker too. Now here is truly a win-win solution for all involved parties.

As discussed briefly in the previous post , HAFA is the new Federal Government’s Program designed to complement the loan modification Program (HAMP), to help those borrowers who cannot qualify for said loan modification efforts.   Below is a bit more detail in a FAQ format.

What does HAFA stand for?
Also known as the “April Program”, HAFA stands or Home Affordable Foreclosure Alternatives. It’s a brand-new government program starting on April 5, 2010 that will streamline and incentivize alternatives to foreclosure. Under HAFA, participating banks must work with you to help you avoid foreclosure.

What are the “Alternatives” in HAFA?
HAFA provides two alternatives that will allow you to avoid foreclosure:

• Short Sale – If you owe more on your home than it is now worth, a short sale will help you sell your home and save yourself from financial ruin. According to HAFA, a real estate agent must be involved in this process. Agents with the CDPE designation are specially trained to help you with a short sale.
• Deed-In-Lieu – This is where the bank accepts the deed of your home instead of (“in-lieu of”) foreclosure. You do not get to keep your home, but your mortgage debt is forgiven.

HAFA also provides up to $3,000 in Borrower Relocation Assistance to help you transition beyond a short sale or deed-in-lieu of foreclosure.

Why should I consider a HAFA short sale?
HAFA sets distinct guidelines and incentives for banks and lending companies so that you will know whether or not you can complete a short sale. One of the common myths about short sales is that they take forever to complete. HAFA makes sure that short sales happen more quickly by streamlining the short sale process.

How is HAFA different from a short sale?
The main issue with traditional short sales was that they took too long, and it was difficult to keep buyers interested in the process. HAFA is a program designed to speed up the short sale process and even gives banks incentives for each short sale they do. Also, after completing a HAFA short sale, you may be given up to $3,000 in Borrower Relocation Assistance to help you transition. During a non-HAFA short sale, there is no government incentive for banks to help you.

Do I have to hire a real estate professional for a HAFA short sale?
Yes, but it doesn’t cost you anything. HAFA pays the real estate professional’s fees. It is a requirement of a HAFA short sale that you work with a real estate professional to help you through the process. CDPE-designated agents understand this process, and are located throughout the country. Find a CDPE in your area today to help you get started.

How do I get started?
Your first step should be to contact an educated real estate professional in your area. An agent can walk you through the HAFA process, determine your eligibility, and provide you with the best solutions available for your particular circumstances.

How do I qualify?
Most homeowners facing financial hardship can qualify for HAFA. If you applied for a HAMP Trial Period Plan but did not qualify, or were unable to complete the Trial Period Plan, you are definitely eligible for HAFA. If you are unsure about your situation, contact a CDPE in your area immediately.

What’s in it for me?
HAFA is the only program that gives you cash for avoiding foreclosure through a short sale or deed-in-lieu of foreclosure. If you complete a short sale or deed-in-lieu, then up to $3,000 in Borrower Relocation Assistance may be available to aid in your transition. This program seeks to ensure that no one will be left high-and-dry if they cannot afford their home. The biggest gain of HAFA, however, is that it helps you get your life back if you feel like there are no other solutions when faced with foreclosure.

How long does the process take?
HAFA speeds up the short sale process by putting in place distinct timelines that the banks—and you—must follow. Each step of the process has a defined amount of days in which it must happen. This keeps everyone on track. The longest possible time allowed in the HAFA short sale process is four months.

What is the April Program?
HAFA is commonly referred to as the April Program.

HAFA Scams
There are many people out there trying to scam homeowners by requesting up-front fees for HAFA short sales. This is fraud. A CDPE-designated agent will never ask you for money. MakingHomeAffordable.gov(MHA) provides the following guidelines:

• Beware of anyone who asks you to pay a fee in exchange for counseling service or modification of a delinquent loan.
• Scam artists often target homeowners who are struggling to meet their mortgage commitment or anxious to sell their homes.
• Beware of people who pressure you to sign papers immediately, or who try to convince you that they can “save” your home if you sign paperwork or transfer over the deed to your house.
• Never make a mortgage payment to anyone other than your mortgage company without their approval.
• Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.

Who is Eligible for HAFA?

Most homeowners in facing financial hardship are eligible. As a rule, if a homeowner is eligible for HAMP but cannot pay the mortgage, then he or she is eligible for an assisted short sale through HAFA. However, loans owned or guaranteed through Fannie Mae or Freddie Mac do not qualify. Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days if the borrower has one or more of the following criteria :

• Does not qualify for a HAMP Trial Period Plan
• Does not successfully complete a HAMP Trial Period Plan
• Is delinquent on a HAMP modification by missing at least two consecutive payments
• Requests a short sale or deed-in-lieu

For a loan to qualify, it must meet the following criteria:

• 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 (as defined in Supplemental Directive 09-01) exceeds 31 percent of the borrower’s gross income
• The mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac

Part 3 of 3  Which Banks are supporting HAFA?

HAFA, HAFA, HAFA.  What is it exactly and why are so many people talking about it and why is April 5, 2010 an important date?

For those who have been following the foreclosure prevention solutions like  loan modification and short sales, this  a critical program which will impact their lives in a major way.  This is the Federal Government’s effort into stream lining and standardizing the short sale process for those borrowers who do not qualify for loan modifications through the HAMP  program. The Treasury is obviously concerned about the proliferation of distressed properties in the real estate market and how they affect the overall health of the economy.  April 5, 2010 is when HAFA goes online.

Remember, short sales that do not successfully get approved  end up on the auction block and if they are not sold there, turn up as the neighborhood eye sore in the form of an REO (Bank owned) properties.   If you are a homeowner, the last thing you want is for an REO to turn up on your block as it will set the bottom range of your home price.   Both Short Sales and REOs negatively impact your neighborhood prices, but  short sales often fetch higher selling prices because they typically have homeowners living there and taking care of the  property which means they show better and are in better condition than REOs; the latter are vacant and many times have been vandalized by the homeowners.   REOs are like the black sheeps of the  family that no one will invite to the party.   Everyone’s collective goal is to prevent more REOs from hitting the real estate market.

What is HAFA?

The Home Affordable Foreclosure Alternatives (HAFA) Program is a government-sponsored initiative led by the US Treasury Department assisting all Home Affordable Modification Program (HAMP)-eligible homeowners in avoiding foreclosure, specifically through short sales or deeds-in-lieu. First introduced November 30, 2009 in Supplemental Directive 09-09 as part of HAMP, HAFA assists eligible homeowners in quickly and effectively implementing short sales by providing financial incentives to lenders that work in conjunction with HAMP to assist homeowners in need. The program was introduced in part with the intent to remove the stigma from short sales and help keep communities from being destroyed through massive foreclosures. HAFA in its current state is only applicable to conventional-type, non-Governmental Serviced Enterprises (non-GSE) mortgages and therefore does not apply to loans owned or guaranteed with Fannie Mae or Freddie Mac. These organizations may have plans to release their own versions of HAFA.

Details of HAFA

HAFA was introduced to simplify and streamline the short sale process. HAFA accomplishes this in the following ways:

• Compliments HAMP by providing viable alternatives for borrowers who are HAMP-eligible
• Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis
• Allows the borrower to receive pre-approved short sale terms prior to the property listing
• Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement
• Requires that borrowers be fully released from future liability for the debt
• Uses standard processes, documents and timeframes
• Provides financial incentives to borrowers, servicers and investors

HAFA provides financial incentives as follows:

• Financial incentives for lenders participating in the program include up to $6,000 (updated March 26, 2010; was previously $3,000) servicing bonus upon completion of a short sale or deed-in-lieu
• Homeowners qualify for $3,000 (updated March 26, 2010; was previously $1,500) in Borrower Relocation Assistance after a short sale or deed-in-lieu has been executed (may classify as taxable income in some cases
• Lenders pay all servicing fees — homeowners suffer zero out-of-pocket expenses

Part 2 of 3 – Who is eligible for HAFA

Sometimes it breaks my heart to hear stories about homeowners who are so mis-informed about this whole foreclosure phenomenon, they simply give up and decide they will let the banks foreclose on them without even exploring the possibility of alternative solutions like a short sale. With all of the discussions of foreclosures and short sales and loan modification, etc….. in the news media, it shocks me that so many homeowners believe that if they were turned down for a loan modification, their only other alternative is a foreclosure.   Not realizing, banks don’t want to foreclose either.

These home owners are so emotionally drained and have beaten themselves up so much about being in their current situation, they almost seem to want to punish themselves.

I had such a meeting with clients yesterday.  This lovely couple was so emotionally drained, they simply resigned themselves to the notion that foreclosure was the only avenue available to them.  They were not even going to explore short sale as an option.  The wife had heard of me through mutual friends and decided to call me just to get some facts to see if there were less invasive methods available to their family.  I explained to them that unemployment  and negative monthly expenditure are viable causes for hardship and the fact their loans were still original purchase money made them ideal candidates for a short sale.   Besides, they had a nice home, which would not be too difficult to sell.

We would try to lessen the impact on their credit and give them a chance to qualify for a Fannie Mae loan in 2 years;   and more importantly, give them a better chance in future employment by not having FORECLOSURE  show up on their credit reports and possibly get them disqualified as candidates for employment since more and more employers are now doing credit checks as a part of  background checks.

After hearing my plan for their home and how to deal with the lenders, I could see the stress leave and smiles appear on their faces.   They thanked me repeatedly for stopping them from falling into the foreclosure trap and giving them a chance at a better method and for returning dignity back to them.

A day like yesterday is a perfect day for me, because I know I am helping people and making a difference in their lives.

Foreclosure is not a viable option. There are better ways both for the borrowers and the lenders.

Here is a fantastic blog entry from Jeff Georghan, which goes into detail as to why the foreclosure mess will be WORSE before it get better.  I felt deserved to be re-posted.  Jeff is obviously correct, but remember, he is speaking primarily of Prime Loans and mentions in passing negative equity as a cause without explaining why;  his analysis does not delve into the coming option ARMs (negative equity loans) crisis which is the reason why many homeowners have negative equity.

From Jeff Geoghan MBA – Lancaster PA Real Estate Expert (The Jeff Geoghan Realty Group, Coldwell Banker Lancaster PA):

This is one of those posts where I wish I didn’t have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home’s value has dipped below what their loan amount is.  I know some within my own personal circles.  It’s a tough situation for me to advise them as a professional because it’s such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we’re asking is “when is this going to stop and where are we heading?”

I’m going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

This chart is by quarter – Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say “yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while”.  That WAS true, but not anymore!  We call that the “Cure Rate”, that is the rate of delinquencies that go back to current.  The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency).  However, as of July 2009 the rate had dropped to just 6.6%!  That means that over 90% of delinquent customers are going to foreclosure.  Take a look again at the above chart…

The next thing someone will say is “well, that’s the ‘sand states’ and not my area”.  Here’s the chart for all 50 states showing the same breakdown of delinquencies and foreclosures.  Guess what – most states have a significant problem, especially compared to historical figures.

Now the next thing someone may say is “aren’t those loans going to get ‘fixed’ by a loan modification?” I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting.  I hope it works out for them…

In reality, loan modifications are hardly making a dent. To me, that’s a burning question.  Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate?  Why are they being SO difficult? The people I know don’t want to be foreclosed.  They CAN make payments.  They just need the terms redrawn to allow them to catch & keep up.  Loan modifications are not helping us get this crisis under control.

What are the causes of all these delinquencies?  Here’s a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it’s the loss of jobs and the tanking real estate market that’s the perfect storm.  See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us “good news”.  You may be experiencing good things in your market and that’s great.  My intent is to get us thinking about the challenges that aren’t going away and how we’re going to address them as homeowners, agents and professionals.  I’d love to hear your ideas!