Anyone who’s followed the Art of Short Sales for any period of time knows that we have not been a huge fan of the HAFA, HAMP, and other government programs designed to ease the short sale process.

This week’s CNN article by Diana Olick continues to prove that over a year after its inception, the program continues to draw poor numbers.

HAFA provides financial incentives for servicers and borrowers to do short sales (selling the property for less than the value of the mortgage) and deeds in lieu of foreclosure (basically just giving the property back to the bank). The program launched in April of 2010 and was later streamlined in December, 2010, based on feedback from mortgage servicers, real estate agents and homeowners.

So far, HAFA has completed 7,113 short sales or DIL’s. In April, however, HAFA saw 1,666 completed, up 74 percent from the 959 done in March.

The government is touting this is a huge success – “a 74% growth!” – but as Diana points out, a 74% growth of nothing is still pretty close to nothing.

According to the article, JP Morgan Chase alone does close to 5,000 short sales a month -and that’s just one bank. The expectation is that the top few banks are likely doing in excess of over 20,000 short sales a month – in that light, HAFA is still producing inconsequential results.

Similarily to what we’ve said here, HAFA’s targeted audience limits the exposure it could potentially have.

“HAFA is a taxpayer funded program, so it has eligibility requirements targeted at a certain segment of the population,” says Risotto, noting that the program is for owner occupants who can demonstrate financial hardship and whose first mortgage is less than $729,750. “HAFA is not meant to be for every person looking to do a short sale,” she adds.

That knocks out investors, jumbo loans and borrowers who don’t meet the “hardship” requirements of the Treasury. The big banks are likely more lenient on that last one, again knowing that a short sales will be cheaper in the end than a foreclosure.

What are your thoughts? Had any success with HAFA? Post in the comments and let us know about it!

Pretty interesting find over at The Big Picture, detailing how to use Google Maps to find foreclosures:

Google Maps keeps evolving, expanding the ability to drill down into granular detail. The latest updated trick? Mapping foreclosures for sale.

Our friends at Chart Porn — a blog that got its name from one of our posts (honest!) — remind us of this, with a step-by-step lesson of how to use Google maps:

Google Maps Foreclosure Listings

1. Punch in any US address into Google Maps.

2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select “More”)

3. The drop down menu gives you a check box option for “Real Estate.”

4. The left column will give you several options (You may have to select “Show Options”)

5. Check the box marked “Foreclosure.”

I wanted to demonstrate the full extent of Foreclosures in the US, so after setting GMaps on foreclosure listings, I slowly zoomed out of the map. Voila! Most foreclosures that are for sale in the USA are now showing on your screen.

Note: This map does not reveal any of the millions of REOs that have already been sold by the banks that hold them.

But the maps do reveal an entire nation littered with foreclosure sales. It is an ugly and graphic depiction of how much inventory is out there, and why housing is stillmany years away from being healthy.

Take a look at this example from Las Vegas:

Unfortunately, it can’t help you find underwater homeowners (you are better off reading our blog post on keeping your pipeline full of short sale leads for that) but it’s still quite an interesting look and when you view the map nationwide, you can see the trouble areas of the country pretty easily.

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!

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!

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!

Came across this article in the Herald-Tribune on short sales yesterday afternoon discussing short sales in Florida as being preferred to bank seizures. If you have been an active reader of The Art of Short Sales, there is nothing really groundbreaking in that statement! Regardless, it continue to shows how short sales play an important role in housing today as housing recovery appears to stagnate.

A California company that tracks distressed properties has come out with new foreclosure statistics that show that the number of properties in Southwest Florida sold through short sales is rising, while the number of properties that go all the way through the foreclosure process — and are ultimately sold by banks — is falling.

That means banks are getting better at selling properties before they take possession, and buyers are becoming more comfortable with waiting for the short sale process to close, experts say.

RealtyTrac Inc.’s first quarter statistics also show, for the first time, the specific average price points at which distressed properties are changing hands.

Properties seized by banks in Southwest Florida, for example, were selling at 30 to 50 percent discounts to properties sold by buyers who are not in financial distress.

In turn, properties sold through short sales — in which sellers have defaulted on their loans but have not abandoned their properties — are selling at a 13 to 27 percent discount.

The price differentials have everything to do with the condition of the property, foreclosure experts say.

“Properties that go short sale tend to be in better condition,” said Drew Peterson, a foreclosure specialist with Re/Max Alliance Group in Sarasota. “They tend to be owner-occupied or tenant-occupied, while bank-owned properties have been abandoned, often because the former owners had problems they couldn’t afford to fix.”

The numbers should be of interest to anyone looking to buy a house. But for flippers, who buy houses, fix them up and resell them at a profit, the numbers could provide a basic playbook, enabling them to determine how much to pay for a property and how much to sink into it before reselling.

In Sarasota County, for example, RealtyTrac statistics show that the average sales price for a home was $206,267 during the first three months of 2010. By comparison, a property seized in foreclosure by a bank sold at a 48.4 percent discount, or $106,409, while a short sale property sold at a 27.5 percent discount, or $149,630.

Again some solid evidence that in Florida short sales should be a preferred option for banks when homeowners are facing difficulty. Florida in particular has been one of the hardest hit states, so it’s no surprise that short sales are such a preferable option.

Market domination

For the past two years, foreclosures and short sales have played an out-sized role in the Southwest Florida real estate market.

Since October 2008, distressed sales have represented anywhere from 26 to 44 percent of total sales, according to data provided by Adam Robinson, a real estate agent who runs SarasotaForeclosures.com.

In May, there were 920 sales in Sarasota County, and 336, or 36.5 percent, were foreclosure sales, according to Robinson’s data.

They also show the number of short sales in the mix has been growing, while the number of bank-owned sales has dropped. In October 2008, short sales only represented 2.9 percent of the total. But last month, they represented 19.7 percent.

During the same period, bank-owned sales have shrunk from 29.6 percent to 16.8 percent of total sales.

“It took a while for banks, Realtors and the general public to get comfortable with short sales,” Robinson said. “It was a new concept. But banks have definitely gotten better at it.”

The phenomenon is still evolving, said Margaret Amador, an agent with Allison James Estates in Sarasota.

“Banks are trying to make short sales into more of a template and they are learning all the time,” she said.

More good news.  We happen to think that banks, lenders, and real estate professionals have all been adapting quite well to the “new methods” of short sale transactions, which are simply a reality in today’s world.

Going forward, market watchers believe that an increasing number of foreclosures will be handled through short sales, saving banks money and speeding the return for market equilibrium.

“Banks have learned they lose more money through foreclosures than short sales,” said Jack McCabe, a Deerfield Beach-based real estate consultant. “With a foreclosure, they have to pay taxes, maintenance and upkeep, and they have keep the air on so the homes don’t get moldy. That can add up to a couple hundred dollars a month, and if a bank has thousands of foreclosures, it can turn out to be a pretty big drain.”

Until banks start lending more freely, experts say the distressed market will continue to be dominated by investors — people like Sarasota real estate agent Tiffni Wegmann, who has sold 16 foreclosed houses and condominiums in Sarasota and Manatee counties for $603,700 more than she paid since August 2009.

Wegmann’s average mark-up on those properties was 74 percent, much higher than the price differential between the average distressed sale and the average non-distressed sale.

In Charlotte County, RealtyTrac data show that bank-owned properties are selling at a 37 percent discount to non-distressed properties, while short sales are trading at a 13 percent discount.

In Manatee County, bank-owned properties are selling for 31 percent less and short sales for 16 percent less.

More often than not, it is flippers who buy the properties and resell them for much more.

“We’re seeing a lot of flipping now — people who are buying distressed properties and reselling it quickly,” said Irv DeGraw, a banking professor at St. Petersburg College. “These people are helping to stabilize the market by driving depressed prices back up.

“I don’t want to use the Gordon Gekko quote from ‘Wall Street,’ but there is a point where greed is good.”

All in all, a positive article that short sales are still evolving from a niche market tactic to becoming a standard way of handling distressed properties that are underwater.

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

Reporting by Diana Olick from CNBC:

The video takes a high level look at HAFA and the government program. All in all a decent view but any readers of this blog won’t be surprised by any of the content.  In a nutshell, it simply discusses short sales and how it could help clear inventory from the books; but that lenders are hesitant to just “write off” bad debts.

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

A new article yesterday from the NY Times discusses the upcoming HAFA programs in some detail:

March 7, 2010

Program Will Pay Homeowners to Sell at a Loss

By DAVID STREITFELD
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

We are less than one month away from the implementation of the new Short Sale program (HAFA, or Home Affordable Foreclosure Alternatives), and many investors and agents are wondering how this program is going to affect them. It isn’t really clear yet, some think this program is a boon while others think it will be a bust. The friendliness of the program to investors is also in question. In any case, the snip above clearly outlines the governments motivation to kickstart a housing recover, and the importance of an election year shouldn’t be underestimated.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

The relocation assistance is one of the biggest benefits for homeowners. Previously the borrowers who undergo a short sale were not allowed to receive anything; now they have the ability to at least get some money for moving expenses, which would have been difficult to garner. I’m still skeptical on how this will actually incentivize short sales though, it’s not as if relocation expenses alone were the make or break item in a lot of potential short sale transactions.

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.

The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”

Short sales are going to be successful with or without HAFA. Lenders have been making gains in Q4 2009 and Q1 2010 to get caught up and improve their processes for their loss mitigation departments and become more efficient with making short sale decisions. Ultimately though, this repeats what we say here in this blog time and time again: the case to the bank has to be clear and compelling. Otherwise, legal wrangles and stalls occur.

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

I think Mr. Paul is mistaken here. I would agree that a range of value is subjective (“Is it $290,000? Is it $300,000?). When the “subjective range of values” for a home is significantly less than the mortgage amount, and the holding costs and carry costs are such that the bank would likely lose more money in a foreclosure scenario than by unloading it earlier with a short sale,  the case for a short sale is pretty clear.

That said, there are of course circumstances where the numbers are so close a bank could go either way (“We could short it for $290,000 but the auction price will be $280 or more”), but those will always exist and those are the situations where the investor / agent has hurdles to overcome in making the case for the short sale to the bank.  It becomes a situation of discussing holding costs, unreliable outcome in an auction / foreclosure scenario, and so on to really build the case.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

Exactly as we have said here – the circumstances around the short sale have to be real and verifiable. A bank’s decision on whether or not to accept a short sale offer is not a matter of emotion, ever! It’s a business decision, period! Appealing to emotion will not work with a bank. There has to be real benefit to the bank for a short sale to be accepted (that is; the alternatives need to be worse)!

What are your thoughts on the article, and on HAFA in particular. How do you think HAFA will affect you and the short sale market in particular?