I have been getting a lot of questions from homeowners about the new government short sale program (HAFA), as well as some from the real estate agents I teach in my short sale seminars. The program is a government initialed program that spells out guidelines for servicers of loans (banks) to tell them how to handle a short sale and is completely VOLUNTARY. The program starts April 5th, 2010. The guideline basically states that the banks has to release deficiency on the loans, on both the first loan and the second loan is there is one. Also that the banks have to answer and respond to a homeowners request for a short sale or an offer from a buyer within a short timeline. The guidelines also spell out additional government forms that need to be filled out by the servicer. And if the banks does all of these things then they will receive a bonus or payout of $1000.00. The program typically requires that the homeowner try a loan modification first, and it does not apply to homeowners whose loans are owned by Fannie Mae or Freddie Mac. Those guidelines have yet to be released.
I am not going to go into all of the guidelines as they can be found here www.makinghomeaffordable.gov. But what I would like to consider is this. If a bank has to release deficiency then they are essentially eliminating their opportunity to try and collect money from the borrower at a later date or sell off this bad debt on the scratch and dent market. This is an emerging enterprise especially with 2nd loans that are recourse debt. Many of these banks are now selling off this bad debt for anywhere from 5 cents to 30 cents on the dollar. There are debt collectors everywhere springing up and buying this bad debt. Secondly you are asking a bank to fill out more paperwork and respond quicker, which is essence will require more man power and employees and overhead for these servicers, and for what? $1000?
I recently asked someone (who will go unnamed) face to face, who sat on the government advisory board for the HAFA program if the metrics had been run to determine if the banks would come out ahead, meaning it would be worth their while to waive deficiency rights and give up their scratch and dent market, hire a ton of new employees to handle the workload, all for $1000. He replied “no.” I then asked what bank in their right mind would ever go along with this government program if they stand to possibly lose more money? He point blank told me, “probably none of them, but it will raise awareness of short sales with consumers, which is our ultimate goal.” This coming from someone who sat on the advisory board!
I recently was a national short sale convention, at which one point there was a panel of 4 members representing 4 VERY large lending institutions in our country, answering prescreened questions about this new government program (HAFA) and short sales. The questions were soft balls pitched up with canned answers, and geared towards getting real estate brokers behind this new program. The moderator ended his questions early and decided to go off script and ask his own on the fly questions. The first question he asked was “What have each of you (lenders) done to prepare for the new HAFA program within your own companies?”. I thought this to be a reasonable easy question from them to answer but their answer shocked me. Their answer….there was no answer. From ANY OF THEM. They sat there in silence and didn’t know what to say.
This tells me that the banks are not taking this program seriously and the amount of people that will actually be helped by it will be very minimal and on a case by case basis. It became apparent that this government program is simply a PR move by the government and lenders to raise awareness of the short sale option, which in whole isn’t a bad thing. It can just be very deceiving.
If you would like for me to discuss with you whether or not your lender is a member of this voluntary program and if you would apply give me a call, for a free hour phone consult. Short Sale Kurt 858.405.5878