A component and specialty servicer, meanwhile, predicted that short sales could increase 50% industrywide this year. Buffalo, N.Y.-based AMS Servicing told HousingWire that the projected increase is due largely to changes in the Obama administration’s Home Affordable Foreclosure Alternatives, or HAFA, program that opens up eligibility to a larger group of homeowners. AMS has determined through analysis of its 2010 short sale metrics that as many as 91% of previously ineligible borrowers might now be eligible for the HAFA short sale program.
“Power of denial is very sharp for someone losing their home,” said David Sunlin, senior vice president at Bank of America. Borrowers want to do the right thing, Sunlin said, and it’s important for servicers to guide the borrower through to the end, whether it’s a short sale or a deed in lieu.
“We need to get these short sales done in a timely fashion. A short sale today is a lot better than it was six months ago,” said Abel Fregoso, vice president and national field short sale manager for Wells Fargo.
The Treasury Department took action in December eliminating some rules it said have held back short sales through the HAFA program. HAFA no longer asks for income verification, unless the borrower is less than 60 days overdue on the mortgage. This means that borrowers who previously were deemed ineligible because their income was too high, may now qualify for a HAFA short sale, said Jim DePalma, executive vice president, default management at AMS Servicing, in an interview after the panel concluded.
David Sunlin said changes to the program are seen as positive by servicers. It works best, he said, when used pro-actively, by helping the borrower market the property instead of having the borrower come to the servicer with a buyer in hand.
Servicers on the panel said they expect the changes in HAFA to encourage more participation in the program.
But the incentive for borrowers to short sell their home can be challenging when it can take up to two years or more to complete a foreclosure. The ability to stay in the home without paying the mortgage may lessen the incentive to participate, panelists said.
As for deeds in lieu of foreclosure, Fannie Mae has looked at them with some sort of incentive at the end of it, such as a few months with reduced rent or no rent, said Beverly Wilbourn, vice president of preferred loss mitigation strategies for Fannie Mae. The key is to engage the borrower earlier and keep them engaged in order to avoid a foreclosure, she said.
“Offer them a way to transition from a very difficult financial circumstance,” she said. “Get to the homeowner and talk them through to life after this horrific situation.”
But, Wilbourn added, “You don’t want to go out and tell everyone to go do a short sale or do a deed in lieu.” The GSE wants to be sure that it is a viable option and the right alternative to foreclosure.
Short sales that have either second liens or mortgage insurance can be more challenging, said Leo Esposito, first vice president of loss mitigation and asset disposition services at ServiceLink, a unit of Fidelity National Financial. But that’s not to say they can’t be done, he said.
The seller may have to make a contribution or sign a note for a short sale with a second lien or with mortgage insurance for the sale to go through, said Wells’ Fregoso.