Short sales are about to get a bit easier for
intelligent real estate entrepreneurs of all kinds, and the federal government will pick up the tab. That's my conclusion, anyway, from a series of changes the Treasury Department quietly made last week to the Home Affordable Foreclosure Alternatives program, which
yesterday. HAFA, as it's commonly known, was
in February of 2010. The idea was to stop pretending that every "struggling homeowner" just needed a pinch of Uncle Sugar and a reasonable repayment schedule in order to stay in their homes, and face the reality that some significant number would never be able to afford the houses they'd bought at the height of the bubble. HAFA was a program to facilitate short sales—wherein the home owner sells the place for less than he owes the bank. Under HAFA, banks were encouraged to take a hit and dole out a little moving money to the home owner. The feds would chip in some to soften the blow. The original program allowed "broker price opinions" to substitute for real appraisals, opening the door to fraud. But there were other rules, some of which were designed to foil some of the more obvious short sale abuses. Say you're underwater on your mortgage. You want to list it short, so you call a Realtor to start the process. The Realtor says house is worth $100,000 less than you have in it, even though similar houses nearby have sold lately for only $40,000 less than your mortgage balance. But who are you to argue with the experts? And what do you care, anyway—you just want out. So your house gets listed and a few weeks later it's sold, for a bit under the listing price. Turns out the Realtor's brother-in-law buys houses. He resells your former house six days later for a quick $50,000 profit. Again, none of your business, right? That's called flopping and it's just one of several games being played right now all over the country by folks with mad real estate skilz. And yeah, it's illegal, and
. But who in the banking/real estate sector fears the cops anymore? So far, HAFA has played little role in the scams. As CNBC's Diana Olick reports, the old HAFA has only done 661 sales and spent $4.3 million total, which would never do:
HAFA required arms-length sales and a series of means tests to make sure the seller was truly in dire straits and could not make any kind of reasonable payments. Or it did, anyway, until now. (Here's a PDF of the updated rules—
) They boil down to this:
- Instead of proving their financial hardship, borrowers now must sign a financial hardship affidavit. (This will be a boon to the rich, dumb would-be flippers who bought near the peak and just want out of a bad investment).
- The new rules also allow for the sale of houses vacant up to a year (not three months). The owners merely must assert that the place had been their principal residence before they left (previously they had to prove that they were compelled to move at least 100 miles away for job reasons).
- Payments to second mortgage holders can be modified slightly, but are still capped at $6,000 total.
- And the speed is increased—borrowers requesting a HAFA short sale are required an answer within 30 days instead of 90.
, "you can't steal in slow motion."