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Can't Refinance? Might As Well Short Sale and Get $3,000 Cash?

[Apr 28, 2010.]


There is a certain group of homeowners who have more or less accepted that they are not going to be able to refinance, and will at a 90 percent rate of probability have to move out of their homes within the next six months.

No central agency has a reliable number on how many homeowners are in this unenviable position, but it's possible that the number is in the one million area.

Every homeowner who can't refinance must seriously look at this new short sale program being propagated by the federal government.

HARP and HAMP Didn't Help? Bring In HAFA

Realtor.org has a nice summation of the Home Affordable Foreclosure Alternatives (HAFA) program. There's been lots of publicity about how the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) haven't helped nearly as many people as was originally anticipated.

HAFA offers a third way for borrowers who can't refinance and whose banks won't modify their home loans.

Basically what happens with HAFA is that everyone involved in the transaction is enticed (monetarily) to do a short sale.

The homeowner who's about to be forced out of the property gets $3,000 for relocation expenses, the foreclosing lender gets $1,500 for processing the short sale, and investors buying the property get up to $2,000 if they allow the "junior lienholders" (i.e. second mortgage or home equity loan) to get paid at least part of their note, rather than getting completely wiped out.

More crucially, the HAFA program requires lenders to set a minimum bid amount that they'll take for the property. This should speed up the short sale process, which has been known to take 6 months or more and be a total pain in the rear end--enough of a pain that no one really wants any part of it.

Now, maybe, the short sale option will be more appealing.

Refinancing Troubled Mortgages Gets a Lot Tougher as Mortgage Rates Rise

The emergence to national prominence of the HAFA program, which was created in 2009, has everything to do with the fact that mortgage rates have been rising of late.

Borrowers who are almost able to refinance, but can't quite meet the stricter underwriting standards of banks, often see a half point of full point rise in mortgage rates as a reality check that this refinance thing just isn't going to happen.

That's not to say that giving up on refinancing is the way to go. But certainly borrowers who cannot refinance should take a look at HAFA as an option.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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