The Making Home Affordable (MHA) Program was created in March of 2009 with a goal of working with home owners to make their mortgage payments more affordable to avoid home foreclosures. To date, this program has mixed success since there are still some disincentives for servicing companies to modify your loan in timely manner, much less process a short sale request.
Problems With the Current Short Sale Approval Process
As we wrote last week, 19% of Colorado home owners owe more on their mortgage than the value of their home. In a situation like this, it’s more difficult or impossible to get refinance your home or get a loan modification. I’ve seen home sellers wait months as loan servicing companies process short sale requests. I had a conversation with a local Denver company we work with that does short sale negotiations and they had several interesting takes on why short sales take so long to be approved.Â
On a current home I have listed that’s a short sale, we faxed in the complete packet over 10 times and it continued “not being received.” Since short sale processors are swamped and the government is watching their time to process short sale requests, some companies are likely “not receiving files” or not responding that they’re missing pieces until their work load is reduced.
Additionally, many servicing companies make a lot of money on fines, penalties, and late payments, not to mention a portion of your monthly home mortgage payment. By approving your short sale request in a timely manner, they’re losing an income stream, hurting their bottom line.
New Guideline on Foreclosure Alternatives Including Short Sales Released
Supplemental Directive 09-09 was release on November 30, 2009 with new guidelines focused on foreclosure alternatives, an expansion of the initial home modification program to help distressed home owners who may not qualify or accept the terms of a loan modification. The Home Affordable Foreclosure Alternatives (HAFA) program provides incentives for loan servicers and borrowers to accept a short sale or deed-in-lieu. While the Directive was just issued, it does not go into effect until April 5, 2010.
Highlights of the Home Affordable Foreclosure Alternative Program:
- The servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower;
- Allows the borrower to obtain a pre-approval for short sale conditions before their home is put on the market. Currently, servicers will not discuss acceptable terms until an purchase contract has been received;
- Prohibits the servicer from requiring a reduction in the real estate commissions as a condition of the short sale approval. This is another step forward since short sales require a lot more effort and experience from real estate agents and is the type of transaction where they should be paid the most;
- Uses standard processes, documents, and timeframes (but see previous mention of servicers losing files so the timeframes don’t start);
- Provides financial incentives to borrowers and servicers. Borrowers will be entitled to a $1,500 relocation incentive if they meet the requirements of the program. Servicers and investors will each be eligible to receive up to $1,000 each paid by the US Department of Treasury;
- The loan will be reported to the credit bureaus as “paid in full for less than the full balance.”
Additional Information on Foreclosure Alternatives and Denver Area Short Sales
If you have specific questions on your situation, contact our team at ShortSales@MileHighUrbanLiving.com and visit our Foreclosure Alternatives webpage.
