Smart Marin County homeowners who have plans to sell in the next three to five years will put their properties on the market now. There are two reasons why:

First, and most obvious: Our market inventory is picking up rapidly. In the first 20 days of April there were 99 homes that closed escrow… while 256 homes came on the market.

Second, and this is the biggie… there are many more homes on the way to market! For this we can thank HAFA.

Last year, the federal government created the $75 billion Making Home Affordable program, as a way to help several million struggling American homeowners remain in their homes. Up until now, Making Home Affordable has consisted of two prongs: the Home Affordable Refinance Plan (HARP) and the Home Affordable Modification Plan (HAMP).

The purpose of HARP was to allow homeowners to refinance first mortgages even if they owed as much as 5% more than their houses were worth (due to declining housing prices). The limit for refinancing under HARP was raised last July to include mortgage debts of up to 125% of a home’s worth. Nonetheless, to date, barely 200,000 homeowners have been able to obtain refinancing through HARP.

For those who cannot qualify for HARP refinancing, HAMP was conceived to modify loan agreements so as to make monthly mortgage payments more affordable, through reducing interest rates, extending the terms of loans, and other mechanisms. But like HARP, HAMP too has fallen far short of its goals, with fewer than 120,000 “permanent modifications” approved thus far.

With almost 25% of all U.S. mortgage holders now “underwater” – owing more than their houses are currently worth on the market—the Obama administration is rolling out a third program, beginning April 5: the Home Affordable Foreclosure Alternative program (HAFA). HAFA will allow struggling borrowers to sell short; that is, sell their homes for their current market value (as determined by neutral real estate agents), even if they owe more than this amount on their mortgages. Once the homes are sold, the borrowers will be forgiven the balance of their mortgage debt and will receive $1,500 in “relocation assistance” from the government.

To qualify for the HAFA program, homeowners must either have failed to qualify for a HAMP loan modification, or have received a HAMP “trial modification” but not a permanent one, or have missed two consecutive HAMP-modified loan payments.

The advantages of HAFA to borrowers are clear. In addition to the peace of mind attendant to retiring their mortgage debts, their credit ratings will suffer much less damage than with foreclosures. They will not, however, be able to keep their homes.

For banks and lenders, HAFA looks like a mixed offering. On the one hand, short sales entail less expense than foreclosures. On the other hand, a short sale is a guaranteed loss to the lender, and requires intensive, complicated administrative work on the part of a bank.

For communities, HAFA’s benefits are straightforward. Foreclosed houses depress the value of surrounding properties and attract vandalism. By contrast, when a house is sold, even at a low price, and a new owner moves right in and maintains or improves the premises, the neighborhood’s value is less impacted.

Still, the market value of homes in the neighborhood will drop, affecting homeowners who plan to sell a home that is not a short sale.

Some Realtors foresee that the HAFA program—combined with inevitable rising interest rates on adjustable rate mortgages (ARMs) —will compel yet more borrowers to sell their homes and contribute to an impending glut in the national housing market.


Posted by:Tom Verkozen