So you've heard that the housing market has finally reached rock bottom and you are feeling like you missed the boat? Have you been kicking yourself for being too indecisive when opportunity was pounding on the door? Well don't start tying your own noose just yet; your ship might very well be coming back to shore.
The U.S. Department of Treasury's Home Affordable Modification Program (HAMP) aimed to stem the flow of foreclosures by encouraging mortgage holders to provide loan modifications and other retention programs to troubled home owners. Apparently coming to the realization that HAMP was not effectively converting delinquent loans and providing ownership opportunities, a second directive was handed down in November of last year.
The second blow in Treasury's one-two punch program is called the Home Affordable Foreclosure Alternative Program, or HAFA, and is to go into effect April 5, 2010. The HAFA directive is quite clear in its intent, requiring lenders to provide distressed borrowers with additional alternatives to foreclosure, specifically through short sales and Deeds in Lieu of Foreclosure.
Under HAMP approximately 750,000 borrowers were given loan modifications or placed on other loan retention programs on a trial basis, of those only 30,000 have been converted to permanent payment cycles. HAMP failed miserably in its effort to stem the flow of foreclosures and clear the market of distressed homes. It was due to this lack of effectiveness that the Treasury Department resorted to HAFA.
What does all this mean to you, the would-be investor?
It means, quite likely, that a virtual flood of nearly three quarters of a million defunct properties will be hitting the market in the coming months as short sales or Deeds in Lieu of Foreclosure. Furthermore, while short sales and Deeds in Lieu are notoriously complex and difficult transactions to manage, HAFA provides incentives for borrowers, lenders, and investors that help simplify and streamline the process.
These provisions, coupled with a desire to facilitate the goals of the directive may prompt lenders to play a more cooperative role in the sales process. Distressed borrowers are more likely to embrace the short sale option due to increased pressure from lenders and financial incentives provided through HAFA. In addition, because these loans have already met HAMP eligibility requirements, much of the paperwork is already done, relieving much of the stress and tedium often incurred by the home owner.
In conclusion, if you are interested in making an investment in real property, the window of opportunity has not yet closed. With such a large influx of distressed properties poised to hit the market, prices are likely to dip once again. Even if you are still averse to entering into a short sale or Deed in Lieu of Foreclosure transaction, you may see a drop in the mean price of non-distressed properties as well; such are the rules of supply-side economics.
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