HAFA: 2 Guys, 2 Burgers and a Voice Recorder

I try to eat lunch every day. And earlier this week, I happened to bring a voice recorder with me and taped a conversation about the new Home Affordable Foreclosure Alternatives (HAFA) program with a local Arizona short sale expert, Dean Ouellette.

Justin: Hey, what do you think about the recently announced HAFA program?
Dean: HAFA?

It should be short for “Keep doing what we have been doing and hope for better results“.

It is a good thing that the Government isn’t into real estate investing or our country would have never made it. The HAMP program is just over a year old now and the government fell a little short of their 4 million homeowners getting relief from the program.

According to my sources 5% of that number actually received a permanent loan modification under the program. And if my math is correct, that means that the taxpayers paid over $400,000 for each successful loan mod.

Justin: Wait a minute. $400k for each successful loan mod?
Dean: Yep. And now the same people who promised you the silver bullet with HAMP are promising you the same desired results with HAFA.

Justin: I think I may have seen this kind of thing happen before.
Dean: Exactly. But if you listen to what the people at some of the big real estate companies and associations talk about it, the world is about to be saved.

My prediction?

More of the same and we are just hoping for better results.

Justin: Are you sure? I mean, the home buyer is going to get $1500 for moving expenses if they sell their house under this program, they will not be liable to any deficiencies and the lender will also get $1,000 for approving the short sale in 10 days.

What is so bad about that?

Dean: The devil is in the details. And as always the details never seem to be a rosy as the talking points. Here are just a few highlights of the program — I won’t bore you with a page by page breakdown of the failure.

First the lender has to make a decision in ten days.

A process that now takes them 30-60-90 days to do, they are going to streamline into ten days?

And for this quick decision they will be rewarded, the Government, and by Government I mean you and I, are going to give them $1,000. Woo-hoo you can see them champing at the bit for the extra $1,000?

How many new people are they going to have to hire to manage this process? Probably a lot more than $1,000 will pay for.

Don’t forget, these same banks were offered money for successful HAMP loan mods, and we see how well that worked.

How else will the lender be rewarded? They have to give up the right to go after any deficiencies in the future. So the lender who may now go after the $200,000 loss from the home seller (depending on state rules) now has to waive that right, for $1,000.

Does that make sense to you?

Even if the bank did not go after the deficiencies, they could sell off most of them to collectors for more than $1,000.

Now that is on the first lien, what about if there is a second? This is where it gets fun. If there is a second on the house they cannot receive more than $3,000 HAFA will not apply to the file and the lender does not get his $1,000 nor will the seller get their $1,500. I am not sure about most of the country, but in Arizona many of these short sales have second on them, and in many of those cases the second, which could be for as much as $100,000 are not going to accept $3,000 and that kills the whole deal.

But that is ok because all that matters is the government put out these new guidelines and that is going to save everything. Oh-yea I did mention that right?

These are guidelines, in no way are they mandatory.

And yes the bank needs to give an answer in ten days, that does not mean the answer is going to be a yes.

Expect banks to sign up for the program, the same way they signed up for HAMP.

It is a good faith gesture that will give them some positive press.

But there are very few cases where HAFA will be a success.

My prediction is the success rate will be somewhere close to the HAMP rate, which is about 5%. This is not a number that should get anyone excited. Where do I predict that it will be successful?

Justin: I realize this may be a strange question, but if what you are saying is true, shouldn’t someone be talking about it rather than just us two?

Dean: Don’t ask me.  Hey, can you pass the Ketchup?

Related Thoughts:
Did agents read the new short sale rules?
Where are all of the HAFA defenders?

Photo Credit: R.W.W.