Bill Robinson at Attorneys Title Agency Taps the Brake on HAFA
Bill Robinson is the president of Attorneys Title Agency, a title services network in Michigan. With the Home Affordable Foreclosure Alternatives (HAFA) program getting off the starting line this week, Robinson doesn't expect the results to meet the hype. HAFA just kicked off. Is the new program really going to streamline the process or create more HAMP-like headaches for the industry? To begin, it’s important to remember that HAFA is part of HAMP. In other words, HAFA guidelines will only apply to short sale or deed in lieu of foreclosure requests made by borrowers who had applied for a HAMP modification. I think we all understand that this limitation may substantially reduce the number of HAFA-required short sales. HAFA also requires participating lenders to forgive a borrower’s loan deficiency if the lender accepts a short sale. This is a significant deviation from many lenders’ policies. There is even some debate about which lenders actually fall within the mandate of HAFA. For all of these reasons, it is far too early to speculate regarding the impact of HAFA on the current backlog of short-sale requests. It is very unlikely, however, that HAFA is going to quickly streamline the short sale process. What does this program do well? HAFA does create the opportunity for standardization of short sale and deed in lieu of foreclosure forms. Given the wide range of agreements currently in use, standardization will help borrowers to better understand the terms of any negotiation. HAFA also requires lenders to standardize their criteria for the approval of a short sale or deed in lieu. Again, that kind of practice will enable borrowers to better anticipate the likelihood that a particular offer will be accepted and what the acceptance means. How does this program affect short sale brokers? Will business boom or bust? The greatest single time delay in the short sale process is the screening of initial applications. Based upon information reported to us, approximately 60% of all these applications are found to be incomplete and, accordingly, cannot even be considered for approval. In other words, even in the best of cases, only 40% of all applications could be approved. In reality, our records indicate that approximately 30% of all short-sale applications are accepted but that is 80% of the applications which are complete. A good short sale processing company can substantially improve the possibility that an approval will be granted by simply monitoring the initial application process. I believe that HAFA will not change this dynamic. The HAFA imposed standardization of forms and approval process does not change the requirement that applications be complete. Short sales are picking up right now. But, in the end, will the already in place REO system be a better way to alleviate these troubled loans? Short sales and REO sales are complementary processes. Both alternatives are necessary to systematically deal with land subject to defaulted loans. All available statistics indicate that when a mortgage loan is in default, the mortgaged land begins to fall in value. It’s easy to understand why. Even the most honorable borrower faced with a loan in default is unlikely to continue necessary maintenance much less improvement. Short sales allow these properties to be sold much more quickly than would occur if a full foreclosure and sale after redemption was required. As such, less reduction in property value results from the short sale alternative. Not every parcel, however, is going to qualify for short sale treatment. In these cases, lenders will be forced to institute a foreclosure. Accordingly, an effective REO disposition process must be maintained by mortgage lenders. Whether short sales or foreclosure and REO resale becomes the norm for troubled properties remains to be seen. In any event, everyone benefits from a timely process which retains as much value as possible in our homes.