Embracing HAFA – (Home Affordable Modification Alternatives)

Mark Hansen is a mortgage market researcher and analyst.  He has an interesting perspective and a clear understanding of the issues.

By Mark Hansen http://mhanson.com/archives/396?shortsaleleads.org

Embracing HAFA – (Home Affordable Modification Alternatives)

It is time to move on. The best solution going forward is for the banks to fully embrace Treasury’s HAFA (short sales and DIL’s) program, begin to foreclose in earnest like they started to in 2008, and get these properties into the hands of new owners.

We know there is huge demand for distressed real estate from investors and those that really can afford to own a home and prices in the hardest hit regions have stabilized somewhat, at least temporarily. There is a lot of excitement around this one. The initial reaction from the lenders I talk to is very positive — if forced to chose, they much rather have a short sale or DIL than a foreclosure because loss severities are much less for obvious reasons.

They are not doing distressed homeowners any favors through loan mods — the distressed homeowner will be in a better position renting a property that they can really afford instead of being saddled to hundreds of thousands in debt that chews up the majority of their gross income every month. Obviously, this will be painful on many financial institutions but the fact is they can’t kick the can forever. And the longer they kick it, the greater the losses will be when the chicken finally comes home to roost.

One of the biggest unintended consequences of HAMP was creating a lack of distress inventory, which is most in demand. Without REO, which made up a large percentage of total sales last year, the depressed rate of existing home sales in 2009 was as good as it gets for a lot of years. HAFA is exactly what is needed to keep sales counts from tumbling in 2010. The only negative is that because DIL’s are REO and short sales considered ‘distressed’, there will be negative housing implications from significantly increased distressed sales as a percentage of total sales.

This is why I believe that 2010 kicks off a paradigm shift from pretend and extend to the first year of a multi-year drive to finally de-lever through increased asset liquidations spearheaded by the HAFA initiative. Over a lot of years, this is exactly what is need to essentially ‘reset’ the housing market and is where my research centers this year.