HAFA Leads Borrowers Toward the Light
The Home Affordable Modification Program isn’t going as planned. On Dec. 1, 2009, officials at the Treasury announced an escape route for borrowers deemed ineligible for HAMP but who still need to avoid foreclosure: HAFA. The program has been in the pipeline since October, when HousingWire broke the story of a program already met with controversy.
The Treasury designed The Home Affordable Foreclosure Alternatives program to provide more incentives to servicers. This time, it’s for short sales and deeds in lieu of foreclosure. The timing is a little odd. Or maybe it isn’t. Nine days after HAFA’s announcement, the Treasury reported just 30,000 permanent modifications in nine months of HAMP.
Shorting Short Sales
Katerina Gasset and her husband, Nestor, close 98 percent of their short-sale deals for their Florida-based company, International Properties Investments. They’re not real fans of what the government is up to. HAFA, she said, dulls the edge they have over their competitors.
“I think that the reason why HAFA came about is that short-sale agents and Realtors were complaining that there’s no guidelines, that it’s the Wild West,” she says. “And we liked it that way. We would get to know each individual lender, what their policies are, how to reach them, and we could do things that the competition in our area couldn’t do.”
To many, HAFA is like the sheriff sauntering into that Wild West town of short sales to streamline the process. But to Katerina, there’s a lot of misinformation that came into town, too, about how the program is going to affect business.
According to the National Association of Realtors’ Web site, “HAFA is a complex program, with 43 pages of guidelines and forms, designed to simplify and streamline the use of short sales and deeds-in-lieu of foreclosure.”
Katerina laughed after reading it.
“How do you put ‘complex’ and ‘simplify’ in the same sentence? It’s an oxymoron,” she says.
For her, that was a light bulb. She spent eight hours poring over the HAFA guidelines and found many problems—or more accurately, many ways it interferes with her business.
“People, especially agents, are going to assume that it means all short sales. It does not,” she says, referring to the guidelines released by Fannie Mae and Freddie Mac after the HAFA program was announced.
“It has a cap,” she says, mentioning the $729,750 maximum amount owed on a loan. “Any loans over that, jumbo loans mostly, are not going to be qualified for the HAFA program.”
She also pointed to the clause in the program that restricts anyone who isn’t a primary resident. Katerina just got off the phone with an investor. One of their clients owns five properties and listed all five of them with the Gassets, who completed short sales for three of them. Of their short-sale business, 50 percent to 60 percent come from investors.
“For a lot of our short sales here in Florida, the people have moved on,” she said.
Will It Work?
The complaints are already set. From both sides. Short-sale experts will lose their edge, and borrowers will wonder why the foreclosure process is still under way as they’re still in the HAFA process. According to the guidelines, servicers can still keep them moving toward foreclosure but cannot complete a foreclosure sale while determining the borrower’s eligibility.
The ultimate verdict on HAMP isn’t going to be the “he said, she said” game of permanent conversion rates, how many HAMP-eligible loans exist in a bank’s portfolio or the fact that a borrower can’t get access to a HAMP modification. Somewhere in the distance, there will be some congressional committee hearing either congratulating the architects of HAMP on its accomplishments or berating them for the gloomy re-default rates. If a HAMP modification only delays an inevitable foreclosure, no one will care how many permanent modifications there are.
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