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With Tweaks to Programs, Short Sales Could Boom Now

With recent tweaks made to the government's loan modification program, mortgage servicers might soon start posting some stellar short sale numbers. Or not.

Firms working under the Home Affordable Modification Program last month started using a new short sale approach for non-GSE mortgages.

The Home Affordable Foreclosure Alternative program expedites the short sale process, providing incentive payments to both servicers and homeowners who complete a sale or deed-in-lieu transaction.

Travis Olsen, chief operating officer of Loan Resolution Corp., noted that properties must be marketed first with the servicer having 10 days to accept an offer.

(It generally takes 45 days for the buyer to get financing.)

The vendor said his shop is involved in 10,000 HAFA short sales.

"The beginning batch is just getting to the stage of closing," he said in an interview with Mortgage Servicing News.

The Scottsdale, Ariz., company specializes in short sales and welcomes the HAFA program because it embraces LRC's approach of getting an investor/servicer (of the loan) to agree to a sales price before a property is placed on the market.

Under the HAFA program, the Treasury Department also provides incentives to pay off second-lien holders that have a claim on the property.

The investor can pay the second-lien holder up to 6% of the loan amount with a $6,000 cap.

Treasury will reimburse the investor on a one-for-three match, or up to $2,000.

"We have seen a positive response by the second-lien holders for the most part," Olsen said. "There are still some trying to hold out."

Last week, Fannie Mae and Freddie Mac issued guidelines for its servicers to implement the HAFA short sales program.

"Servicers must first consider a borrower for HAMP and then for other home retention options before considering the borrowers for HAFA," Freddie says in a bulletin to servicers.

"Once all other home retention options have been exhausted, eligible borrowers must be considered" for a HAFA short sale.

Fannie/Freddie servicers are expected to have the HAFA program up and running by Aug. 1.

Under HAFA, the GSEs will pay servicers $2,200 for every completed HAFA short sale and $1,500 for every deed-in-lieu of foreclosure transaction.

Fannie/Freddie servicers currently can receive up to $2,200 on a short sale, provided the loss on the sale does not exceed a certain percentage.

With so many homes severely underwater, Olsen said, "the vast majority of times they were not receiving the bucks."

In other words, the money will be a real incentive for Fannie Mae and Freddie Mac servicers, said the LRC chief operating officer.

In addition, the HAFA program brings more standardization to the GSEs' existing short sales programs. Freddie completed 9,600 short sales in the first quarter, compared to 3,100 a year ago.

Fannie Mae completed 17,000 short sales, compared to 6,000 in the first quarter of 2009.

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