Short sales are anything but. While the name may make some homebuyers think that the transaction is quick, a short sale actually refers to "The act of a borrower and a lender working together to sell a home below the loan amount due to avoid foreclosure. Short sales require the approval of the lender and the term 'short' reflects that the amount of the home price is less than the actual amount due to the lender," (MortgageMarvel.com). Short sale properties being sold under the Home Affordable Foreclosure Alternatives (HAFA) Program Servicers are about to get a boost to help streamline the process.
Courtesy of the mortgage meltdown, short sales became a common strategy implemented by homeowners trying to avoid foreclosure. A recent meeting of the Mortgage Bankers Association addressed the topic and it seems that HAFA mortgage servicers are interested in taking proactive measures in regards to the transactions in order to stem the costs associated with foreclosure and prevent homes to reverting to real estate owned status.
Changes to HAFA Short Sale Program
Short sales are known as some of the most stressful types of home purchasing transactions in the business. The process involves a financially struggling homeowner locating a potential buyer and getting lender approval to accept the offer, even if it is less than the current amount due on the home loan. Once the bid has officially been entered, a long game of 'hurry up and wait' will begin, leaving potential buyers (and sellers) in a precarious position of not knowing for months at a time. A bank can take up to six months to approve an offer and once they do, buyers and sellers will have to rush to get the transaction completed.
Short sales were a limited branch of HAFA, and in December the Treasury Department took some steps to streamline the process that was limiting activity in the sector. The new rules skip the step of income verification for the sellers (with the exception of if a borrower is less than 60 days late on their mortgage). This revision switched the game for borrowers previously disqualified for having too high an income, and has resulted in 91 percent of ineligible borrowers now qualifying to participate in HAFA short sales (HousingWire.com). Additionally, increased outreach to financially stressed consumers is a big component of the program changes.
Loan provider Fannie Mae is currently working on shaving the time associated with a short sale. According to John Will, director of component servicing with the organization, "We are trying to cut the timeline in half." Will has stated the importance of accepting and processing the first offer quickly as the offers amounts tend to decline for the second and third attempts of purchase.
About HAFA
The Obama Administration launched the Home Affordable Modification Program (HAMP) with the goal of helping millions of struggling homeowners better handle their mortgage obligations. While HAMP helped approximately 500,000 citizens, it fell short on its’ goal.
HAFA originally launched in April 2010. The program was designed to assist homeowners that were disqualified or fell out of HAMP by offering incentive to lenders who opted to allow short sales and deeds-in-lieu of foreclosure. HAFA is implemented under the U.S. Treasury department. Program terms include:
- Homes not backed by government loans
- Homes now can be vacant for up to 12 months as previously, vacancy was not an option.
- HAFA short sales also boast a short lead-time of ten days for lender approval.
- Sellers can get up to $3,000 cash at closing.
- Only personal residences apply.
- Government loans do not apply
- The monthly PITI mortgage payment, including Homeowners Association dues equals more than 31 percent of the borrower's gross monthly income.
- To qualify for a HAFA short sale, the borrower (AKA seller) must be able to prove financial hardship. Loss of income, increased mortgage payments or unexpected increase of expenses are all valid reasons.
- The original total mortgage amount must be less than $729,750.
- The mortgage near default must have originated by January 1, 2009.
- Program expires December 31, 2012.
Short Sale Activity Expected to Increase by 50%
The Mortgage Bankers Association has predicted that short sale activity will increase by 50 percent in the near future. That is in addition to an existing spike of 167 percent marked by Fannie Mae and Freddie Mac (Federal Housing Finance Agency 2010 compared to same time period in 2009).
Home buyers looking to gain the competitive edge in a short sale can help speed up the lenders’ decision-making process by proving mortgage pre-approval in conjunction with a bid. Mortgage Marvel, the industry's premier mortgage rates origination site, can expedite that task for mortgage seekers. Individuals simply need to enter the zip code for where a mortgage is needed and within seconds, Mortgage Marvel will produce an easy to read rates comparison table featuring mortgage opportunities from local lenders. Individuals can opt to complete an online application and receive their pre-approval status in about 20 minutes.
