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Benefit of a luxury short sale 

by J. Craig Anderson – Jul. 15, 2010 12:00 AM

The Arizona Republic

A recently implemented federal housing-market stimulus program designed to encourage Short Sales appears to be doing just the opposite, according to Phoenix-area real-estate agents, title companies and mortgage lenders.

Home Affordable Foreclosure Alternatives, the fourth initiative to be launched under the banner of the Obama administration’s Making Home Affordable program, offers a cash incentive of up to $3,000 to homeowners on the brink of foreclosure who stick around to complete a Short Sale or deed in lieu of foreclosure, rather than just walking away.

It also provides a bonus of up to $6,000 to loan servicers for every Short Sale or deed in lieu they approve.
A Short Sale is one in which the home’s seller owes more on the mortgage than the home’s sale price would cover. The lender must agree to remove its lien from the property despite the unpaid loan balance.

A deed in lieu of foreclosure involves the delinquent homeowners signing the deed to their home over to their primary lender and walking away from the mortgage. The exchange occurs by mutual agreement, rather than by default.

While deeds in lieu are relatively rare, Short Sales have become foreclosure’s twin engine in driving the housing market through its current readjustment period following an unprecedented real-estate bubble that burst in 2007.

Short Sales are better for the housing market than foreclosures, because Short Sales generally do not lead to long periods of home vacancy, as foreclosures often do.

With that in mind, real-estate agents and others said they had been eagerly anticipating the April’s implementation of the federal short-sale program, nicknamed HAFA.

That excitement quickly turned into disappointment as the effects of HAFA started to become clear, they said.

First of all, HAFA Short Sales require double the paperwork of other Short Sales, said Tempe real-estate agent Steve Trang of Occasio Realty.

“The most irritating thing is going from a document that was 50 pages to one that’s 100 pages,” Trang said.
HAFA Short Sales also can take twice as long to complete, said Steve DeLaveaga, vice president of sales and marketing at Fidelity National Title in Tempe.

A typical Short Sale takes longer than regular home sales because there are extra steps and more people involved. However, DeLaveaga said most lenders had done a good job of streamlining the process in the six months leading up to April.

Before HAFA, the typical escrow period was 35 to 50 days, DeLaveaga said. Now it’s taking 75 to 100 days.
Most big consumer-mortgage lenders now require HAFA applications for all Short Sales, he added, even when the sellers have little chance of qualifying for the $3,000 relocation allowance.

Only about 10 percent to 20 percent of Phoenix-area short sellers actually qualify for the money, according to DeLaveaga and others.

Over the past three months, HAFA Short Sales have developed a reputation for being more time-consuming, labor-intensive and unreliable than comparable Short Sales occurring outside the federal program, Trang said.
For instance, a HAFA applicant’s lender must send a letter of approval to the program’s administrators in Washington, who then must review the application themselves.

Delays on the part of lenders and the government have dragged out the sale process, he said. In some instances, the Buyers have gotten impatient and walked away from the deal.

“We have a government that is well-intentioned, but they’re adding more obstacles,” he said.
HAFA is the fourth program to be implemented under the Obama administration’s $75 billion mortgage-relief effort, known as Making Home Affordable.

Its two key components, the Home Affordable Mortgage Program and Home Affordable Refinance Program, have undergone a number of revisions, primarily to reduce eligibility standards in response to lower-than-expected participation.

HAFA is likely to be subjected to a similar tweaking process, said Jay Butler, associate professor of real estate at Arizona State University’s W.P. Carey School of Business.

“Basically, they’re trying different things to see if they work,” he said.

Dan Noma Jr., branch manager at Arizona Best Real Estate in Chandler, said he is optimistic about HAFA’s potential for helping the local housing market.

The biggest problems are that too few consumers know about the program, he said, and too few real-estate agents know how to effectively push through a HAFA deal.

Chad Melin, branch manager at Academy Mortgage in Mesa, said real-estate agents should warn their clients to start putting together the documents required under HAFA, which include proof of income and evidence of financial hardship.

Noma said he still believes the program ultimately will help people once it has been broken in. HAFA eligibility lasts until Dec. 31, 2012.

Gilbert HomeSmart real-estate agent Maria Hass said she was not optimistic.

“The HAFA program, just like the other programs, has not really helped,” she said. “It’s been a disaster.”

Courtesy AZcentral.com

It is a question that I hear from my clients almost daily, “Why doesn’t the bank just reduce my payment, instead of losing all that money?”. When taken at face value, it seems to make perfect sense. Rather than foreclosing or allowing a Short Sale, shouldn’t banks preserve their assets by modifying struggling borrowers? The answer seems obvious, but the answer is not that simple.

Contrary to most opinions, banks are not stupid. They know that, regardless of interest rate, a homeowner who owes significantly more than the value of their home is at very high risk for default. Approximately half of homeowners, that received some kind of loan modification or payment assistance, have already defaulted. With that in mind, lenders do not look at modification as anything more than a band-aid. It is an even money bet that the homeowner who receives the loan modification will be right back in default within a very short period of time. As such, they need to be very cautious about handing out loan modifications without a great deal of scrutiny.

Most folks have noticed that there are far fewer banks than there were a few years ago. Wells Fargo took over Wachovia, Washington Mutual was gobbled up by Chase and Bank of America swallowed the poison pill better known as Countrywide. Those are just the ones that make national headlines! Large banks and even the FDIC have been taking over mortgage assets left and right since 2007. These enormous mortgage portfolios have been acquired at breathtaking discounts. Chase took over Washington Mutual for approximately 98% less than the face value of their outstanding mortgage dollars! If they foreclose or allow a borrower to sell short, they are still making an incredible profit.

Finally, banks are just like you and I in some ways. They have to borrow money the same way we do. Every time they lend money out, they need to either pay their own depositors or borrow the money from the federal reserve. The loans that they obtain are for very short terms and very low interest rates. These loans are subject to interest rate fluctuations just like all loans are. If they agree to reduce a borrowers interest rate down to 2% for five years and interest rates increase in the next few years, they are still locked in to the terms of that modification. It may seem like a great deal for a homeowner, but leaves a great deal to be desired for a stockholder!

As a Realtor, I rely on an active real estate market to make my living. If there were a push for lenders to reduce the principal balance for borrowers nationwide, that would prevent the resale of these homes to new Buyers. Not only would that mean billions in lost wages for real estate agents, escrow officers, insurers, pest control companies, home inspectors and numerous other businesses involved in home sales, but it would also reward homeowners who made poor financial decisions by allowing them to virtually purchase their homes all over again for less money and below market interest rates! Discouraging or declining loan modifications may not be a very popular practice by our country’s lending institutions, but it is exactly what the American economy needs to speed its recovery.

Courtesy GOarticles