Realty Check

Is Treasury Admitting Mod Defeat?

I'm hearing a lot of buzz about the blogosphere, and it's buzz like this that I find tends to be the flurries before the storm hits (forgive me but I've just survived an epic DC snowstorm).

The buzz surrounds some comments made by a Seth Wheeler, Senior Advisor to the Treasury Department, to the American Securitization Forum last week. He gave the introductory address to a panel entitled: Mortgage Modification and Loss Mitigation Trends: Impacts on RMBS Performance.

In discussing the Obama Administration's , which is arguably less successful than anyone intended, Wheeler made a comment leading some to believe that the Administration may be shifting focus from modifications to another program which simply gets troubled borrowers out of their homes as quickly and cleanly as possible.

"Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve stability [in housing]," Wheeler told ASF members and guests. "Modifications are only for a certain subset of distressed homeowners." And we are learning daily that it is a smaller and smaller subset than previously expected, thanks to job losses and strategic default.

On November 30th of last year, with very little fanfare, the Treasury launched the Home Affordable Foreclosure Alternatives program (HAFA??), which specifically targets short sales and deeds in lieu of foreclosure.

According to the directive:

Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:

- Does not qualify for a Trial Period Plan;

- Does not successfully complete a Trial Period Plan;

- Is delinquent on a HAMP modification by missing at least two consecutive payments; or

- Requests a short sale or DIL

My guess is that last one is the most popular.

The HAFA program offers incentives in this program "upon successful completion of the short sale" or Deed in Lieu. They include borrower relocation assistance of $1500, a servicer incentive of $1000 to cover administrative and processing costs and investor reimbursement of $1000 for subordinate lien releases. That's when the investor allows up to $3000 in short sale proceeds to go to subordinate lien holders.

"It is my belief that the success of HAFA will be vastly greater than HAMP," says Mark Hanson, a mortgage consultant in California.

"Going forward, figuring out exactly what this means for foreclosures, REO, house sales, housing inventory, values, bank balance sheets, second mortgages, RMBS prices, the builders, the mortgage insurers, and sentiment is where the focus will be."

Questions?  Comments?