Bowling for Short Sales

One of the interesting developments coming up in the distressed property scene is the new HAFA part of the HAMP program issued by the Department of Treasury.  HAFA regulations are supposed to help banks minimize losses by providing incentives for homeowners to either short sale thier property or deed it back to the bank in an orderly fashion.

As things stand now, owners default, live in the home payment free for a few months, then ding the place up on the way out.  The bank usually takes significant losses because the home is damaged, they incur legal costs to do a foreclosure, and they don't get to recover the lost payments while the homeowner lived there.

HAFA is supposed to encourage owners to short sale their property rather than squatting for the long haul. How does it provide encouragement?  Well, for starters, they will provide the homeowner a $1,500 stipend at closing to move on to another property.  The same goes for deed-in-lieu of foreclosure.  The catch is the homeowner must pay the mortgage company up to 31% of their monthly gross income as compensation while the process is in play. 

Another interesting caveat is that while this process may encourage homeowners to do short sales, there is a rule that prevents total commissions for a transaction from being greater than 6% of the sales price.  This 6% INCLUDES any short sale facilitators or other intermediaries.  Many of the mortgage servicing companies out there are creating their own "Facilitator Departments" to take advantage of this rule which will leave Realtors with about 4% or less to divide amongst themselves after the transactions are done.  Unfortunately, given the headache that short sales are, this reduced compensation will likely push many Realtors away from doing them.  Our government at work: one step forward; one step back. 

I remember in 2006 as the market began to run up, I had a short sale where the total compensation was 2% of the purchase price.  The selling agent and I basically were paid enough to purchase groceries for the week.  Given the fact that I put over 80 hours into the sale, it was a loosing proposition to focus my efforts on short sales after that.

Perhaps we may see a repeat of that experience as HAFA moves full steam ahead starting April 5, 2010.  Keep your eyes peeled.