HAFA encourages short sales to avoid foreclosure

Short sales give distressed homeowners an exit that doesnt lead through credit-damaging foreclosure and saves banks money compared with taking and selling houses with failed mortgages. That should make them a preferred option. But short sales take longer, often two months longer, and can be nearly impossible if other lenders have liens on the house. So at the urging of the National Association of Realtors, the U.S. Treasury Department came up with a new program to encourage short sales. Home Affordable Foreclosures Alternatives, or HAFA, went into effect April 5, although banks and real estate agents will need time to take full advantage of its provisions. HAFA encourages short sales chiefly by, (a) holding parties to deadlines for various parts of the process (b) providing financial incentives, including $3,000 to help the homeowner relocate; $1,500 for servicers to cover their extra costs; and as much as $2,000 for mortgage security investors who allow as much as $6,0  00 of sale proceeds to go to other lien holders (c) allowing the current mortgage holders to get pre-approved short-sale terms before listing the property for sale (d) requiring that homeowners be fully released from future liability for the first mortgage debt. 

Under HAFA, banks must decide within 10 business days whether to approve or deny a requested short sale under the program.  Many more will be heading for a short sale or foreclosure. The Mortgage Bankers Association said more than 9 percent of homeowners were behind at least one payment on their mortgages in the fourth quarter. The HAFA program cant reach many of those houses. Lenders participating in the federal governments effort to encourage mortgage relief for distressed homeowners Home Affordable Modification Program are required to participate in HAFA as well.