As 2011 takes hold, many economists are saying this is the year real estate will finally turn around: Sales will be increasing, prices will be stabilizing and conditions will be generally improving. While there will be many improvements during the year ahead, unfortunately foreclosures and other distressed properties will still make up a larger-than-desired portion of the market.

The government is hoping to reduce this foreclosure inventory and speed the recovery through new changes to its Home Affordable Foreclosure Alternatives Program. The HAFA program is designed to help homeowners who owe more money on their homes than they are worth. Rather than have the property go into foreclosure, many homeowners will try to sell their home through a short sale. This occurs when the bank allows the property to be sold for less than the mortgage owed on it.

Short sales are notoriously long and difficult because of the complexity of the mortgage market. To help expedite the process, the government introduced the HAFA program to streamline these sales. Unfortunately, the HAFA program has seen limited success thus far due to the intricacy of the mortgage process and because of stringent qualification requirements.

To help expand the reach of HAFA, the government has now issued some updates to the Treasury version, which will hopefully help make the program available to more homeowners trying to avoid foreclosure. Below is a summary of those changes, which will be effective Feb. 1.

Monthly Gross Income

Previously, the borrower’s mortgage company, or servicer, was required to verify that the borrower’s total monthly mortgage payment exceeded 31 percent of the borrower’s income. Beginning in February, this will no longer be a requirement for participation; however, borrowers will still be required to show evidence of a hardship.

Vacant Property

Prior to the new guidelines, a borrower was required to be living in the home to qualify for HAFA, unless the homeowner had recently moved a certain distance for employment purposes. However, this requirement was eliminating many potential program participants. Under the expanded guidelines, properties that have been vacant or rented for up to 12 months are now eligible for the Treasury version of HAFA. Borrowers are required to show that it was their primary residence prior to relocation, and that they have not purchased another property in the prior 12 months.

In other words, a borrower’s reason for relocation no longer needs to be connected to employment. The requirement that the new residence be a certain distance from the home considered for short sale has been eliminated as well.  

Subordinate Liens

Oftentimes borrowers who find themselves in a short sale situation have multiple mortgages or other unpaid debt on their property. Perhaps a home equity loan, unpaid homeowners association dues or back taxes will prevent the homeowner from getting the permission he needs to complete a short sale. Under the new HAFA guidelines, the first mortgage holder is now allowed to pay these subordinate lien holders up to $6,000 to release their liens. Previously, the limit was 6 percent.

Timeframes

To help eliminate delays on HAFA transactions, servicers are now required to determine a borrower’s eligibility within 30 days of the borrower’s expression of interest in the program. Servicers are also required to give an approval, disapproval or counteroffer no later than 30 calendar days after receiving a sales contract.

While it’s yet to be seen whether these new program changes will make the short sale process smoother and easier, they’re a step in the right direction. To learn more about selling your home as a short sale or buying a short sale, contact your local REALTOR®.


By Kenny Parcell
Appeared in the Salt Lake Tribune and Deseret News January 22, 2011