A new article from the LA Times appeared on September 5th coining a new type of scam called, “Flopping”.

In a nutshell, the article claims that agents, lawyers, and loan brokers all conspire together to devalue a house more than it really is to get a better deal on a property than it is truly worth, and it coins this, “Flopping”:

In an illegal flip, the scam artists inflate the value of the property so the mortgage company will lend more than it’s worth. Then they work a deal with the seller to pocket the difference.

A flop works the other way. Rather than inflate the value of the house, they deflate it so the lender will permit the borrower to sell the place for far less than what it’s worth. Then the buyer or realty broker, who is often part of the fraud, sells it to someone else at its true value and splits the profit with others in on the deal.

First off, we have a big concern that the LA Times makes a statement like this with little backup other than a single quote about homeowner scams from the recently released CoreLogic study.Furthermore, the CoreLogic study commentary around fraud typically deals with transactions that are not arms length and / or transactions where full disclosure is not occurring (identifying future sales or B-C flip type of transactions).

We are surprised at the traction this article has gathered on Twitter and elsewhere; because frankly it just seems so cobbled together and leaving loose ends out there. The advice at the end of the article is almost incoherent:

• Be alert to who is counseling you. Don’t respond to unsolicited e-mails, and don’t call the numbers on roadside signs. Trust only your closest advisors. Or contact a counseling agency approved by the Department of Housing and Urban Development. If a counselor is not HUD-sanctioned, look elsewhere.

• Just because you see the letters LLC after the name of a firm or individual doesn’t make it or him legit. Check them out with the state authorities to make sure that they are registered or licensed, and with your state consumer-affairs agency to see if any complaints have been lodged against them. Ditto for your real estate agent.

• Beware of claims such as “We win 99% of our cases” or “We don’t take no for an answer.” It just doesn’t happen.

• If someone suggests that the lender will agree to an offer that is far below what your house is really worth, even in the current poor market, you should be wary. The agent, in conjunction with someone else in the transaction, may have a buyer waiting in the wings at a higher price.

First off, who is this directed towards? Homeowners? If so, then why does the opening statement say that Homeowners tend to lose millions on short sale fraud, when the homeowners financial position isn’t impacted once you are in the short sale territory?

Or, is this directed towards those working with lawyers and title brokers?

The final point they make is based on the house being worth far below what it truly is – who determines that? There is only one person that determines home values – and that is a BUYER. The bank does their due diligence with an appraisal or BPO before a short sale offer is approved. A ridiculous offer should be vetted during that procedure, but again – it’s important to remember that all these numbers are only someones opinion.

As we always say – as an investor or agent, you need to disclose what the circumstances around a transaction are and be honest about the deal. If there is a mass conspiracy between BPO agents, title companies, and brokers, I would sure be surprised. It does happen, but those are clearly unethical transactions. The bank needs to cover themselves and make sure they are performing accurate valuations to mitigate their risk, and that’s the end of it.

Thoughts? Have you encountered any of these so-called “Floppers” in your neck of the woods?

There has been a lot of talk on the Internet the past few days about so-called Short Sale Guru’s and some of the scams they may or may not perpetuate. We have strong feelings about scammers at Short Sale Artisan, and that is: Steer Clear at All Costs!

Like any industry, there are always a few bad apples that can perpetuate the image that the entire industry is corrupt or full of selfish, greedy individuals looking to take advantage of other people. Real estate in particular has always been a trap for that. It’s hard to visit real estate sites anywhere on the Web without seeing promises of “Getting Rich in 30 Days” or “Make $10,000 In 5 Days without Having to Do Anything!”.

Let’s be clear – there is a lot of money to be made in real estate, and real estate can be an incredibly lucrative industry. But don’t think for a second that it’s easy or painless. Being successful in real estate, like any other industry, requires work, perseverance, and constant self improvement.

The old adage rings true: If it sounds too good to be true, it probably is.

Psychology behind being “suckered”

In a lot of ways, people get suckered for these get rich quick schemes the same way they do with diet pills. Many individuals, particularly those who are in a difficult position in life, will spend their last few dollars trying to buy some course or program that they think will just pile in money for them. It just doesn’t work like that, just like a pill won’t melt away the Bacon Double Cheeseburger you ate last night.

Even MSN posted a great article on so-called real estate riches, doing some hefty analysis into the real estate investment psychology.

“It’s the jackpot mentality,” says psychologist Patricia Farrell, author of “How to Be Your Own Therapist.” Just like the schmoe who buys a winning lottery ticket — every once in a while, someone, somewhere really does use these edgy real estate investment techniques to make millions.

“It’s not the principles that are flawed,” says Bour. “It’s the simplicity and ease that are overstated.”

Most of the information that is taught by the so-called gurus is available free on Internet forums like Bigger Pockets or REI Club and can be gained for free, by talking with other investors in user forums who have or are in the process of actually doing the type of real estate investment you’d like to do (be it short sales, commercial properties, investment properties, rental houses, or fix & flip). It requires you to search out information and be proactive about it -but if you aren’t willing to at least put in that level of effort, don’t expect to gain anything more just because you shelled out $2500 on a spiffy real estate course.

Evaluating a real estate investment product

That’s not to say all products are bad. You just need to be very careful with how you invest your money. Many courses are education, and education is invaluable. Next to a $100,000 college degree, a $2500 course can sure seem quite reasonable. But, like the college degree, its what you do with that information that determines if your up front investment was worth while.

Research the company and the owners of the company

This is such an obvious step, but spend the time to research what you are investing into. Find out how long the company has been in business, and where they operate out of. Find out who the owners of the company are, and if they have true experience in the industry. The great thing about the Internet nowadays is that it’s quite easy to find out if people are scamming, because people are very quick to post about bad experiences they have, and it’s hard to hide from bad press.

There are also many websites dedicated to reviewing real estate guru’s and their courses. They are worth checking out as well. Here are two to get you started:

Reed’s Guru Rating

Real Estate Course Reviews

Also, you should look also on Facebook and Twitter and see what people are talking about.Remember that these mediums are easily manipulated and affiliates and company shills can easily post “pretending” to be customers of the company. It happens all the time.

Make sure as well that the owners of the company / the Guru – has experience in what they are doing. They should be able to back this up with documentation and proof, and not self-created proof, like we have recently seen with this Karen Hanover scam that is percolating around the Internet. (Can you believe it? Some gurus will go so far as to self-invent designations for themselves that don’t really exist!)

Talk to people who have been through the course

Under no circumstance should you ever sign up for a class or course without talking to someone who has already been through it. Learn from others. You can get a feel then also for the content of the class and the value it provided.

Use common sense

Our rule of thumb: anyone who promises something crazy, is probably crazy. Also – don’t be a marketing puppet. You know marketing when you see it. Don’t fall for it! Use common sense, and look at the features of a package – not just the marketing hype.

Over the past few months,  we have found it amazing that some people can fall for such obvious marketing ploys. YouTube videos, extensive affiliate networks, and more; just go to reinforce the marketing perspective.

At Short Sale Artisan, we take great care not to patronize our clients. We believe every client of ours is a self-driven individual who is looking for tools to make their lives easier. That’s what we promise to deliver. We don’t promise free money, or easy-street, or that you won’t have to work again for the rest of your life in 84 minutes. Anything that promises to do the work for you and give you a 100% chance of success is a red flag, period.

Finally, don’t fall for time-pressure tactics. You will always here that you need to sign up today. You don’t. Your decision to take a course should be based on your desire to take one. Not a pitchperson planting that in your brain. A successful, well designed real estate course will be around tomorrow, next week, and next month. This is especially true on webinars where you will be pressured with “limited time bonuses” and other goodies.

What is the return and guarantee policy

You’d better be sure that if you aren’t satisfied with the course, you have a way to get your money back! Make sure you research this ahead of time!

Price to Benefit Ratio

It’s easy for Gurus to convince you that their courses or software products are worth the steep up front fees, because they can make the easy claim that “All you need to complete is one deal and you will make back many times your investment”. That’s true, but if they are so confident in the ability to deliver that one deal – they should let you pay after you’ve made your first deal.

Our opinion: look at what you are getting. It makes no sense to pay $2500 for a “setup fee” for a piece of software, in our opinion. What software out there costs that much money, unless it is an enterprise level piece of software for a company with dozens or hundreds of employees? We feel that these exorbitant setup fees (charged by companies like Freedom$oft) is almost extortion. These companies aren’t making their money by providing a good product at a fair price. They are making their money by suckering a few people into signing up for empty promises. In our opinion, this is not only scammy, it’s also highly unethical. These types of deals lead people to feel like they have “sunk cost”, that is; they have invested in the system and do not want to cancel, even though they get no benefit from it.

Industry damage

Another unfortunate byproducts of scammers is that they make the industry look bad and shady, when it truly is not.

We’ve all read about the Freddie Mac report on investor fraud. These types of things are strongly perpetuated by the “bad apples” in the investment training and education categories. Overall, views of investors range from “meh” to “unethical”, even though the majority of investors are stand-up people making a living with a true career path, like any other entrepreneur. That’s why it is so important we self regulate and weed out these guru scams and investors who behave inappropriately.

Some scams, exposed!

Just in the past two weeks, a big one has been the Karen Hanover commercial real estate investing.

This one involved creating fake designations and placing falsehoods on an resume.

The “associations”  Karen Hanover  touts as being a member of CCREA NAIA (and the self storage one SSEI?) are all her own creation.  In February she had the balls to create a press release to tout how the CCREA had awarded her real estate course its #1 ranking! I love tenacity and perseverance, but fraud is disgusting and seeing how there are so many dubious characters in this business, it just bugs me.

Anyway I sent an email to Sperry Van Ness’s Human Resources department and got back the enclosed email. According to SVN she has never worked there and their attorneys are looking into it. ))) I have not called Marcus & Millichap.

This is pretty scary stuff. It’s so easy on the Internet to look professional and real, and that is why so many people fall for scammers. It’s not enough to be presented designations – you need to follow up with them!

Now, that’s not to say that Karen Hanover doesn’t have valuable information to help you out in your real estate investing career – we are only suggesting that you need to tread lightly when contemplating courses such as hers. It certainly doesn’t leave a great first impression when you hear about how things like her designations are fabricated.

So what should I do?

We are not against real estate courses or investments at all. We just think everyone needs to step back, take a breath, and not be blinded by the promises that are made by the marketing wizards that run these companies. Evaluate the course for what it really is.

We personally feel that the best courses are ones that aren’t “in your face” marketing, but are more subtle and have some more composure. These courses stand on their own, and don’t need ridiculous promises to drive hype up to people who are vulnerable to the small glimmer of financial freedom with zero effort.

You don’t see real education institutions (like colleges) pulling these types of marketing tactics, so you should be turned off when you see high pressure sales tactics.

We’d love to hear your stories in the comments about companies that scammed you! Exposing them, as we mentioned above, is one of the most important things we can do to clean up the industry. There is a lot of real, legit money to be made investing in real estate, especially short sales with the market today. Remember, even a good course does you no good if you just attend and don’t do anything afterwards. Action is necessary!

Came across these very interesting graphs from the excellent Calculated Risk Blog today:

This first graph shows Existing Home Sales from 1994 and forecasted out to Jan 2011. It’s interesting how this corresponds with our other blog post from this morning discussing the woes of the housing market. The artificial boost the homeowner tax credit gave first time homebuyers was quite significant, judging by that great drop in prices.

This graph above makes it look like inventory sure is going nowhere quickly. Despite historically low interest rates and many deals around on houses, people just simply are not buying properties. This means that we can expect some significant foreclosure activity and short sale activity for the next period of time (in our opinion: several more years). This underscores the importance to everyone involved in real estate the emergence of the short sale transaction from a niche category to a truly mainstream way of clearing out bad inventory on the bank’s books. It’s a tough nut to chew, but one banks are really going to have little other options.

Another interesting trend here is that year-over-year inventory, despite being negative for over a year, is now back in neutral territory. For a  true housing recovery, that inventory change needs to be dropping, not increasing, as it is doing here.

The last chart we have here is months of supply. This is a pretty astonishing graph, in that we are now at over a full year of supply! Even in the best of economic circumstances, clearing that kind of inventory takes a significant amount of time.

What does all this mean? It means buckle your seat belts, folks, because it’s gonna be a while before the housing market really sees a turnaround.

Very interesting video and article by the Associated Press today along with commentary from the LA Times:

Some startling information from the AP this morning indicating that sales of previously owned homes are down over 27% in July. The credit for this has partially to do with the expiration of the federal tax credit for new home buyers.

This drop was worse than expected, and the Natinoal Association of Realtors (NAR) has said this is the worst drop since 1968, and home sales are at their lowest levels since 1995.

“From our vantage point, the first-time home-buyers credit pulled forward demand — by definition this is what stimulus measures achieve — however the issue this time is that there was so little demand to be pulled forward, the credit has left no demand for the summer,” Dan Greenhaus, chief economic strategist for Miller Tabak + Co., wrote in a research note Tuesday morning. “The result is exactly what we’re seeing: a near, if not outright, collapse in housing.”

Total housing inventory jumped 2.5% at the end of July to 3.98 million homes available for sale, representing a 12.5-month supply at the current pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9% below the 4.58 million in July 2008.

What does this mean? It means inventory is still very high, and home prices can be expected to stay suppressed for some time to come. Additionally; you can expect the short sale and foreclosure pace to continue for some time.

What are your thoughts? Post ‘em in the comments!

More market news about short sales Courtesy of The Signal, in California. The title of this article is, “Short Sales Hamper Market”, and it’s an interesting article because it somehow backwardly blames the housing problems on Short Sales, even though we have shown over and over again that short sales are actually a mitigating factor, a partial solution, to the housing crisis.

The first point they make is that people aren’t buying homes:

Local realtors are met with a persistent problem: People just aren’t buying homes.

The problem is two-fold — there aren’t enough homes on the market, and customers are still wary to buy, local Realtor Andrew Walter said Friday.

I’m betting this is a typo. It probably should have said there are too many homes on the market. Either that, or the author is very confused, as the next sentence goes on to describe how the number of houses on the market have drastically increased:

More than 1,000 homes were on the market in July, up nearly 40 percent over last year, according to a report released by the Southland Regional Association of Realtors [but only] 244 homes changed hands, the report stated.

That’s because the majority of the houses and condominiums on the market were caught up in the lengthy, labyrinthine short-sale process.

Last month, 176 homes were sold, down 25 percent from the same month last year. Another 68 condominiums were sold, a 23-percent drop.

I find it interesting that this article blames the short sale process for flooding the market with houses. The houses and other properties are flooding the market for numerous reasons, but resulting short sales are a downstream effect of the market, not an upstream causation.

We’ve posted some analysis here, but even the HUD’s report itself claims differently. The flood of houses is due to low demand and high inventory. It’s like when Gucci makes too many bags, so they ship them off to the Outlet to get rid of them at bargain prices. The inventory is just too high.

Remember, building a house takes time. Housing starts were outpacing demand, and even when the market started to come down on housing, a lot of developments were still in progress and were finished, even though the buyers had vaporized. It will take time, perhaps years, for construction starts to begin again and for demand to “catch up” to supply.

“These short sales are such a huge, cumbersome, involved, long-term project,” Walter said. “A lot of these homes sit there, and they look like they’re available, or look like they’re pending, and they just go on forever. I’ve got one I’ve been working on for a year.”

“There’s no sense of urgency because people are not quite sure where this is going. They’re like, ‘Well, we’ll see what happens.’”

Again, short sales are challenging (that is why Short Sale Artisan is such a useful tool!). But if the house was not in a pending short sale, it would be in a pending foreclosure. It’s not like the houses would turn around quicker if they were going to foreclosure!

What are your thoughts on the article? Are Short Sales are a part of the problem? Our position is: Quite the contrary!

Short post - a quick chart that shows year-over-year changes for different markets. The crux of the chart is that short sales are increasing as a % of transactions ongoing, further proof we are in the “Year of the Short Sale”

Information courtesy DataQuick

More housing news about Freddie and Fannie this time. The interesting thing about this is that they obviously are not pushing short sales as hard as they should be, maybe some of those short sale initiatives aren’t working as planned?

The article comes courtesy of Michael Kraus, who makes a few interesting observations: (a more detailed breakdown of the numbers can be found at REO Insider Magazine)

The losses taken by Fannie Mae and Freddie Mac are becoming an old hat at this point.  Every quarter, we expect to see a loss and an accompanying request for more money from the treasury (thus far we are up to about $150 billion).  A slightly more novel phenomenon is the rapidly mounting number of REO properties owned by Fannie and Freddie.

Fannie and Freddie broke an ignominious record in the second quarter, they now have a record amount of REO inventory on their books.  I imagine this is a record that will be broken several times in the future.

We agree, but what does this mean? Does it mean that the efforts of Fannie and Freddie to process more short sales is falling flat? We all know that short sales typically minimize losses for the lender.

Some quick facts about Fannie and Freddie’s REO portfolio from the article:

• Loan modifications are up 123 percent from last year, but REO inventory is rapidly mounting.
• Freddie’s single-family portfolio is up almost 85 percent, the multi-family holdings are nearly doubled.
• Forbearance agreements are up a staggering 655 percent.
• Short sales completed by Freddie are up 180 percent from the first half of 2009.
• Freddie did actually make money on REO in the second quarter, netting $40 million in profits, as compared to losses of $159 million in the first quarter.

There are a lot of other interesting facts in the article, which is worth reading in the entirety.  The takeaway is this: REO inventory is stacking up at Fannie and Freddie, and likely is mounting at other lenders as well.  This is yet another sign of the burgeoning shadow inventory, which will be ultimately make its way to the market.  This overhang of houses will cause home prices to decline.

At this point, with all this inventory still out there, we might almost be ready to put a stake in the ground that 2011 will also be the Year of the Short Sale!

The estimated industry financial impact of short sale fraud is $310 million annually with the risk of ‘unnecessary losses’ occurring in one in every 53 short sale transactions. The average amount of unnecessary loss is $41,000 per short sale transaction.

It’s an interesting statistic, and we wanted to know more about how CoreLogic arrived at this number.

The definition CoreLogic uses to define Short Sale Fraud is:

“where parties involved in the process manipulate the short sale transaction and/or subsequent
transaction for a profit.”

They have interesting logic in the article that essentially correlates duration after a close with a resale to likelihood of fraud. In other words, even with disclosure of intent to resell, selling a day later for $30,000 profit is much different than selling 30 days later for the same profit, because in those 30 days things could have changed, like improvements on the home or even a shift in property values.

We are still in the same boat we have always been on – advocating for disclosure, disclosure, and more disclosure – you want to keep your head above water legally and protecting yourself means keeping everyone informed as much as possible as to what is going on with your transaction.

They then make a comment that I fully agree with: Lenders need to do their own due diligence as well to make sure that the deal is a fair one for them. In other words, the lender should know if the market would have held a sales price of 30,000 more than the agreed short sale price.

Rather than arguing over what is fraud and what isn’t, lenders should focus on their primary objective—eliminating unnecessary loss.

And:

“By definition, short sales constitute a financial loss to lenders but will continue to be a necessary part of the mortgage industry as it seeks stabilization. The primary objective for lenders is to eliminate unnecessary loss,” stated Tim Grace, senior vice president of Fraud Analytics, CoreLogic. “The best way to mitigate fraud risk and unnecessary loss is through a collaborative effort where lenders collectively share pre-closing and post-closing information. Lenders in the CoreLogic Mortgage Fraud Consortium will benefit greatly from sharing knowledge of concurrent transactions pending on short sale properties in real time.”

They have a great graphic that shows time and resale value after a short sale transaction as well:

Other Findings:

CoreLogic 2010 Short Sale Research Study Highlights

• The number of short sales in the market has more than tripled since 2008 with the estimated annual volume at 400,000.  Multiple variables indicate short sales will continue to be a frequent and important part of the mortgage industry.
• Over half (55.8 percent) of all short sales occur in just four states (California, Florida, Texas, and Arizona).
• Approximately four percent of short sales have a subsequent resale within 18 months.
• Investor driven short sales are not inherently bad. Investors provide the industry with necessary liquidity.
• Short sale transactions may be deemed risky to the lender when either: 1) the second sale amount is vastly higher than the short sale amount, and/or 2) the two sale transactions are executed within a very short window of time.
• Short sale fraud exists. While the exact definition of what constitutes fraud continues to evolve, CoreLogic analysis indicates lenders are consistently incurring more loss than necessary. Approximately one in every 53 (1.9 percent) short sale transactions was part of an egregious flip and therefore deemed risky.
• It is estimated that lenders are incurring unnecessary losses of $300 million in short sale transactions annually.
• Group, consortium analysis and reporting are necessary to fully leverage multiple-lender data and mitigate risk.

All in all, a very good (and short!) read that talks about what is happening and reminds us of many things:

1. Disclose your transactions
2. Investors are necessary in today’s market
3. Short sales are still in a peak and are expected to remain for some time into the future

What are your thoughts? Share them in the comments!

I always find it amusing when someone thinks they are entitled to a short sale simply because their home is underwater. We have said it over and over again; but this little Q&A blurb from MarketWatch (paraphrased below) explains it very well:

Housing Wire author Cary Steinberg recently wrote an interesting piece on about HAFA and HAMP. The premise of the article is that HAFA (the Home Affordable Foreclosure Alternative) will likely be successful because it is an exit strategy for homeowners, allowing them to sell their house for less than they owe – as opposed to HAMP (the Home Affordable Modification Program), which keeps people in their houses but modifies their payment terms to make payments less of a burden.

We have written plenty of articles here on HAFA and HAMP, and identified plenty of reasons why we think it won’t succeed, but it’s always interesting to revisit what is going on in the housing market, so let’s run through Cary’s article to point out some of what we consider flaws in the argument.

The first point that is made is that homeowners simply do not want to own a home where the balance of their mortgage exceeds the value of the property. In other words, they are underwater.

Say I bought my home in 2006 for $500,000 and put $50,000 down, and I got a loan for $450,000 at 7% for 30 years. I could afford the payment, and I paid on time. Fast forward to 2009. I am not making the bonuses I was in 2006, and my wife’s hours have been cut so our family income is not what it was. It seems that the HAMP program was made for me. Now comes the real question. Do I want to stay in the house? I owe essentially $450,000 on my home. From 2006 through 2009 the value of my home decreased from $500,000 to $240,000. I now owe $450,000 on an asset that is worth $240,000. Even if I were offered a mod to 3% and the term extended to 40 years do I really want continue to pay on a loan when the asset is worth about half of what I owe?

Granted that there are folks that didn’t buy their home as an investment but rather as a homestead. A place they felt they would stay for years to come. Maybe the schools are the best or the home is close to other family members, there are a variety of reasons. Those are the folks who have kept up their modifications through the trial period and into the permanent status. They may continue to pay, but as many areas are still seeing price stagnation and even continued decline, it will be interesting to note what the recidivism rate is on the permanent modifications in a couple of years. Some people started a trial modification because they initially hoped that things would get better and they would stay in the home. Some got on a trial modification simply to buy time. Some people stopped making their payments and it was months before they were offered a solution if they qualified for one.

My first concern he did address: some people buy homes and intend to live in them for a long time. There are plenty of homeowners who are underwater on their home who can afford and do continue to pay their mortgages. As a matter of fact, as of late last year that number was almost 1 in 4 homeowners. The argument that they should walk away has been made by others and is one I strongly disagree with in principle. The oft repeated argument we make here is that short sales when appropriate are a best case solution, but they aren’t always appropriate. Short sales are a lender’s decision to minimize an imminent loss.

Now, in the event of true hardship (which the article points out by reduction in salary), short sales can be a great solution. Maybe there is no reasonable mortgage modification that can be made that would enable a homeowner to still meet their obligations. In that event, a short sale is a great solution – however we have already identified numerous issues with the HAFA program itself that make it seem underwhelming at best. The negative feedback has been consistent. There are also numerous other reasons why the HAFA program was destined to fail, including:

1. The underwhelming results of the overarching HAMP program. As a matter of fact, through January 2010, HAMP had only created a little over 100,000 modifications, despite having promises of reaching 4 million plus struggling homeowners. Remember, the HAMP program was also “mandatory“, but the results still were meager at best.
2. Promises of speeding up the process seems a little bit “pie in the sky”. Even though the 10 day window does not describe the entire process, the loss mitigation departments at the banks are still struggling with being understaffed and overworked.
3. There is no enforcement for not following the guidelines. There are no repercussions (other than consumer complaints) if things take 20, or 30 days, or if the terms aren’t followed as outlined.
4. Financial incentives are low – $1000 incentive payouts aren’t really that much in the scheme of the amount of work involved to process one of these deals. 2nd lienholders in particular can get $3,000, but that’s only marginally more than they are getting today. Since lenders aren’t able to utilize deficiency judgments under HAFA, they also lose the ability to try and collect some of those outstanding amounts. This is important, because lenders often sell these for reduced values to other debt collection firms. Those are tangible assets for a bank that are essentially wiped out.
5. Paperwork standardization – Banks are all using their own short sale packages today. Mix in some of these government HAFA files into the same loop and it’s going to get them even more confuse than they already are.
6. Removing the case-by-case analysis that short sales need: Every short sale transaction is different, and lender should approach them as such. HAFA requires lenders to identify their minimum net proceeds ahead of time, and the guideline requires 120 day period to change that value. This means that if a property falls outside of the minimum net proceeds, it isn’t eligible under HAFA. That’s a shame; because the house is worth what the house is worth, and even in the span of 120 days the criteria used can change. It removes flexibility from the process, which is critical when handling these transactions.

Everything we have seen from users of Short Sale Artisan and in the market in general has indicated that HAFA is taking up a very small percentage of short sales that are going through, and the vast majority are still being handled as they were before HAFA went “live”.  In the end the result will likely be an under performing program just like HAMP and HARP are.

The article continues to discuss the difficulty with the junior lien holder, which we have also discussed here.

Now, there are issues. Although HAFA provides for a little money to go to a junior lien if one exists, insiders are reporting that the juniors are not just rolling over and accepting what the plan calls for. This can delay a deal at best and kill a deal at worst. It is too early to tell what the success rate of the HAFA program will be but I am betting it will be far better than HAMP.

I personally would bet much different – I would say I think it will mirror HAMP in success, which is to say, negligible.

What do you think? Do you agree with the statement that:

HAMP is a band-aid. HAFA is an exit strategy.

We’d love to hear your comments!