MANATEE — Local real estate agents, attorneys and lenders are taking a wait-and-see view of the federal government’s latest foreclosure prevention program, which took effect Monday.
The Home Affordable Foreclosure Alternatives program might help more strapped borrowers avoid foreclosure by selling their homes at a loss or surrendering them to the bank. But the U.S. Treasury Department program’s chances of success are uncertain and won’t be known for months, if not years, they said.
“Is this going to work? Your guess is as good as everybody else’s,” said Cindy Greco, a Wagner Realty agent, who also is president of the Manatee Association of Realtors. “I guess only time will tell.”
The program offers money and other incentives to spur short sales, in which a lender allows a property to be sold for less than what the borrower owes on it and forgives the balance. The practice has become more common as falling home values leave homeowners financially “underwater” on their mortgages.
In Manatee, short sales have accounted for one in five home sales so far this year, according to figures supplied by Greco.
But getting on that financial lifeboat can be a time-consuming and grueling process, as banks can take weeks or months to consider short sale offers. The process can take even longer if an investor owns the mortgage or multiple lenders are involved. The delays can prompt frustrated buyers to walk away, leaving sellers with no recourse but foreclosure.
Federal officials hope the new program streamlines and shortens that process for qualifying homeowners — namely those who tried but failed to get their mortgages modified through the federal Home Affordable Modification Program or missed payments after the loan was modified under the program.
Under the Home Affordable Foreclosure Alternatives program, borrowers and first-mortgage lenders must agree on short sale terms and conditions before the home is placed on the market. The borrower then has up to a year to market the home and negotiate agreements with other mortgage holders, if any, while the lender is prevented from foreclosing.
When a buyer makes an offer, the borrower must submit the sales contract and other information about the buyer to the lender within three business days. The lender then has 10 business days to either accept or reject the contract.
Several financial incentives kick in if the contract is accepted and the sale is closed, including up to $3,000 toward the borrower’s moving costs and $1,500 toward the mortgage lender or servicer’s costs. The incentives also apply if there’s agreement for the borrower to turn over the property deed to the lender.
As with any government program, there are conditions. Among them:
n The property must be the borrower’s primary residence.
n The loan must be a first-lien mortgage that was issued before Jan. 1, 2009.
n The borrower must be behind on mortgage payments or in danger of becoming delinquent.
n The monthly mortgage payment must exceed 31 percent of the borrower’s gross income.
n The amount owed on the first mortgage is no more than $729,750.
Although Treasury officials said lenders participating in the mortgage modification program also must participate in the new program, both programs are voluntary. That will be key to the Home Affordable Foreclosure Alternatives program’s success, Greco said.
“There’s a lot of good, positive things in this program,” she said. “Whether we’re going to see lenders participating or not remains to be seen.”
Sarasota real estate attorney Anne Weintraub agreed. “It is my hope that HAFA would solve all of our problems,” she wrote in an e-mail. “However, HAFA is still only a plan and its success will depend on how many investors — banks that own the note — are willing to participate.”
Bob Stobaugh, president of the Gulf Coast Mortgage Bankers Association, said the new program has potential.
“It’s too early to tell whether this is going to be a solution,” he cautioned. “The system needs to get flushed. We need to get distressed properties off the market to allow our market to recover. If this program helps stimulate movement, it’s a good thing.”