Short Sales Better Than Foreclosure

On April 5, 2010, a new federal program will be implemented to help homeowners facing foreclosure. The new program called the Home Affordable Foreclosure Alternatives (HAFA) will push mortgage companies and banks to allow homeowners to do a short sale instead of foreclosing on their homes. A short sale is when a homeowner sells their home for less than what is owed on the home and does not have the money to pay the lender the difference.

Banks are already lost millions on homes due to foreclosures since 2008. Banks are still in denial and are only concerned with working with customers who can make them a profit. Working with homeowners who are facing foreclosure will help the economy and help current homeowners. Would a bank rather get $0 or get hundreds of thousands of dollars? Either way banks will take a loss but the short sales will be cheaper to process than foreclosures.

Unfortunately the housing crisis is still affecting many Americans. However, the number of foreclosures this time last year was 803,489. According to Realtytrac.com the number of foreclosure as of February 2009 was 624,240, but it is still too early to determine if the rate of foreclosure filings is declining from last year's numbers.

Under the new HAFA program, homeowners who don't qualify for the Home Affordable Modification Program (HAMP) and have mortgages backed by Freddie Mac or Fannie Mae or have missed two consecutive mortgage payments have to be offered a short sale. This will force lenders to forgive the difference.

Homeowners will also have the option of doing a "deed in lieu or foreclosure". Under this option a homeowner can voluntarily give their home back to the mortgage company and the lender records the mortgage as paid in full. However, with either option it will be reported on your credit report and greatly lower your credit score even if you have good credit.

Under the HAFA program, homeowners can get up to $1,500 to help them relocate to a new residence. If a homeowner has a second mortgage they can receive up to $3,000 of the short-sale proceeds.

The program may also lure more investors who are able to snap up homes at record low prices. The short sale program will still produce vacant homes but at a cheaper cost to mortgage companies than foreclosures.

Millions of homeowners were targeted to be helped under the HAMP program but so far due to banks unwillingness to assist homeowners, only a little over 100,000 have been helped by the program. Only time will tell how many homeowners will actually be helped under the HAFA program.