Hafa – Are Short Sales the New Foreclosure?

Many of you may be aware of the new program introduced on April 5, 2010 called the Home Affordable Foreclosure Alternatives Program (HAFA). This article will highlight important parts of HAFA, provide some helpful stats and trends, reveal revenue opportunities and provide you with action items to aid your success with the program.

Program Definition and Guidelines
HAFA is a subset of the Home Affordable Modifications Program (HAMP). It is a part of the Making Homes Affordable Plan introduced by President Obama. The purpose of this program is to reduce the number of foreclosures in the marketplace. Another purpose is to streamline the short sale or deed in lieu of the foreclosure process. This is a program that was strongly encouraged by NAR because of the problems REALTORS® were having with getting short sales approved for closing.

  • HAFA is mandatory for all participants in the HAMP program. This means that borrowers who can’t qualify or stay in the HAMP program must be placed through HAFA before foreclosure is implemented.
  • Borrowers are allowed $1,500 for relocation assistance
  • Borrowers and REALTORS® will receive pre-approved terms before listing the property, including the lender’s net on the proceeds of the sale. It also requires that lenders accept or reject an offer (with reason) within 10 days of receiving all the required documents. 
  • The program will utilize a standard process and uniform documents. Currently REALTORS® have to keep up with the different lenders forms. This new process will save a huge amount of time.
  • Borrowers must use a licensed real estate professional for the transaction.
  • Listing periods must be 120 days initially with a possible extension to a total of up to 12 months. 
  • Lenders must not require a reduction on commissions up to 6%. 
  • Third party vendors (e.g. – short sale negotiators) will not be paid from the REALTOR’S® commission.
  • Lenders will be required to release borrowers from future liability on the first mortgage. This also includes subordinate liens that receive incentives under HAFA.

Stats, Trends and What it Means to You
In 2009, two million foreclosures were sold by less than 1% of REALTORS®. The impending rise in short sales allows REALTORS® to compete on an even playing field with REO agents. So what does this all mean to you? It’s simple. Just like saving is the new spending, short sales are the new foreclosures. However, don’t take my word for it. A very famous musician once said, “Women lie, men lie, but numbers don’t.” Below are some more important facts:

  • The U.S. Department of Treasury estimates that about 85% of all outstanding loans are currently participating in the HAMP program. At the beginning of HAMP, more than three million were eligible. As of March 2010, only 203,000 have been successfully awarded permanent modification status.
  • Deutsche Bank estimates 42% of homes under-appraised by Q4 of 2010, with Option Arm rates peaking between 2010 and 2011.
  • Loan delinquencies in Texas rose 5.31% and Houston’s unemployment rose to 7.8% in Q4.

Okay, I am finished beating you over the head with stats. My objective is not for you to run out and make short sales a primary source of business, but rather to create awareness about this new program and the value not just to your pocketbook, but to potential clients that may have been overlooked otherwise.

Another Revenue Opportunity
As mentioned above, the lender must provide the acceptable listing price for the home. To accomplish this, HAFA will allow the use of Broker Priced Opinions (BPOs) for evaluating property value; therefore another trend we are bound to see will be a rise in BPO requests. BPOs provide a great way to create additional cash flow. A typical BPO pays about $40 to$95.

Next Steps
As lenders prepare to fully implement HAFA, below are some recommended next steps:

  • Visit http://www.realtor.org/REALTORS® /basics_short_sales to get familiar the process.
  • Consider performing BPOs. Lenders will look for trained professionals in this field. 
  • Invest in Notice of Default (NOD) lists and begin contacting these homeowners early.

The HAFA program, if successful, will create a shift in the current market place. It will streamline a very cumbersome short sale process. Homeowners will once again be able to breathe a little easier, and we as REALTORS® will be offering an invaluable service. I hope I have helped shed some light on this new process, or at least provided enough information to be dangerous.

Jemila Williams,GRI, RDCPro is Broker and Founder of Gemstone Real Estate Inc. located in Houston. Jemila is a speaker and author of the upcoming book, The ABCs of BPOs. She can be reached at Jemila@TeamGemstoneRealty.com.