Emerged in the last 20 years of the 20th century, short sales provided a viable solution to the 1989 Savings and Loans crisis. Similar to foreclosure crisis of 2008, the 1989 Savings and Loans crisis resulted in wide spread foreclosures and economic slowdown. In reaction, the federal government enacted new real estate regulations which opened the door for the process of short sale. One main difference from the current administration plan, the majority of short sale properties were sold under the supervision of HUD.
In the current crisis, short sales can play the role of balancer restoring investors’ confidence in the United States’ housing market which in turn will result in more funding opportunities for future potential real properties’ buyers. The Obama administration had enacted HAFA – Home Affordable Alternative Program – as an alternative to HAMP. HAFA offers investors and loan servicers incentives in exchange of selling the property to a new potential buyer. Usually, the sale price covers at least 80% of the original loan amount on the first trust deed, or lower, depending on the actual current market value.
Using short sale procedures, HUD liquidated all failed lenders’ assets. This included residence real estate and commercial properties. At the same time, new federal regulations opened doors for commercial banks to enter housing market as direct lenders and servicers. Moreover, the real estate industry became heavily regulated as a direct result of FIRREA – Financial Institutions Reform, Recovery and Enforcement Act of 1989 – through more organized and educational based licensing requirements.
Since its start, HAFA has been slow. Incentives offered by federal government failed to entice financial institutions into more participation. Duration periods of short sales are the main reason that the foreclosure process is much faster and quicker where courts perform a supervisory role only in judicial states. In California, and similar non-judicial states, foreclosure process is even faster as an independent third party handles all transfers between property owners and the loan beneficiary. This third party is commonly known as “Trustee” on the Deed of Trust.
How can HAFA become more productive? First, foreclosure state law needs to be altered in order to match HAFA guidelines. Second, incentives must be made into laws governing financial institutions’ possible actions. And third, Obama’s administration’s focus must be to be converted from HAMP to HAFA including wide promotions through media outlets. Such change on the top will result in a shakedown throughout the system forcing law makers to support homeowners instead of financial institutions.
Contributor, designer & admin for JohnHart Gazette.
