On April 5, the Obama administration launched a new program aimed at ‘helping’ underwater homeowners avoid foreclosure. The program is called HAFA (Home Affordable Foreclosure Alternative), and unlike its predecessors, its stated mission is not to ‘save’ the family home but to grant homeowners already in default what it calls a “graceful exit” via a three-thousand dollar ‘get out without damaging the property’ incentive payment after completing either a Short Sale or Deed in Lieu of Foreclosure. The rationale behind the HAFA foreclosure ‘prevention’ plan is that short sales and deeds in lieu of foreclosure are less damaging to defaulting homeowners credit scores than foreclosures. I suppose one could surmise that, according to the government, it is possible to be a little bit pregnant with regards to credit worthiness. Or perhaps the government would prefer that its economic engine – consumer spending on credit – be restored sooner rather than later. Aside from the three-thousand dollar payment to homeowners, other financial incentives built into the HAFA program are extended to real estate agents in the form of (surprise/gasp) guaranteed commission levels for short sales; to servicers for partial reimbursement for the high administration costs of the program; and there’s a pittance to investors holding the ill-rated notes or securitized pools.
What are they thinking in Washington? Accelerating the volume of distressed properties places the government in the untenable position of facilitating further house price declines and jeopardizing the economy’s anemic and uneven recovery. Through encouraging short sales, the government is signaling lenders of a policy change in the form of an all-clear sign that it’s acceptable to finally release the “shadow inventory” and to start writing down non-performing assets off loan books. Perhaps the timing is not coincidental, as an end may be coming soon to the Financial Accounting Standards Board (FASB) bizarre Rule 157 that allowed insolvent banks to mark assets to mythical valuations to artificially inflate their capital base – and game their stock price.
The administration seems to believe that the economy and the banks are strong enough to handle a foreclosure blow-out. Now? But when has the government been right about assessing risk and forecasting collateral damage? Anyone? The very real problem with this new policy is that there is a direct correlation between the percentage of distressed properties and house prices. A well orchestrated spike in distressed property sales is sure to cause wholesale price declines and destabilize the economy. Recent small gains in the Case/Shiller and other housing indices should not be taken as an all-clear signal. As backward indicators, the indices do not reflect the dramatic spike in foreclosures that has occurred over the last month. In California, for instance, there has been a 100% increase in foreclosure activity for March 2010, compared to March 2009.
Government directed compensation to lenders and real estate agents – with taxpayer funds – for their participation in additional economic destruction is bad government policy. It would be better for the government to address the financial damage done to Americans under its watch by undoing it, through changes in the tax code, bankruptcy code, and temporary changes in consumer credit reporting outcomes. (Of course, none of this will happen because of powerful lobbying groups).
And while short sales are heralded as doing less damage to credit scores and costing lenders less in expenses than foreclosures, short sales do just as much collateral damage to neighborhood house values as bank owned listings do. So why is the government doing this? Perhaps, in part, HAFA is designed to help prop up the perennially insolvent duo of Freddie Mac and Fannie Mae, which have oversight authority over the HAFA program. Thus, Fannie and Freddie’s participation becomes somewhat of a quasi-government jobs program and guaranteed revenue generator. The other slap-happy beneficiary of the HAFA program are members of The National Association of Realtors. On its website, the lobbying group boasts about fighting hard for a guaranteed 6% commission clause in the Short Sale Agreement contract for its members. (In fact, the 6% commission is referenced on five separate pages among the 43 page HAFA Supplemental Directive 09-09 document). Mission accomplished.
Some of HAFA’s objectives are mildly attractive, such as the anti-deficiency clause and the forgiveness of taxes (only on the first note). However, lenders have already implemented many policies that mirror HAFA, and have done so without blowing more TARP money and without the bias that the administration is exhibiting by determining which socioeconomic strata ’deserves’ to be helped by its programs and which groups are to be left out. The criteria for ‘benefitting’ under HAFA is printed below in gray. Keep in mind that homeowners must be turned down for the HAMP (Home Affordable Modification Plan) program before being accepted into the HAFA program. What this essentially means is that after all ‘hope’ of being able to keep the home has been extinguished, people are supposed to call up their local Realtor to list their property as a ‘short sale’ and then cooperate with Disclosure Statements, Open Houses, Showings and the inevitable Offer and Inspection period. Frankly, a deed in lieu of foreclosure may be a better option for the faint of heart. Short sales are, after all, asymmetrical transactions where the homeowner operates in the least powerful position and is the only party that has everything to lose in the outcome of the transaction. The mere fact that every potential buyer who enters a short sale property already knows the financial position of the homeowner should give one pause, as this type of information sharing should bring up questions regarding the law of agency. The only possible advantage I can think of for a homeowner in a short sale transaction versus signing a deed in lieu is the possibility of extending their duration in residence. But the trade-off requires a steely disposition.
In accordance with the provisions of Supplemental Directive 09-01, a loan meets the basic eligibility criteria if all of the following conditions are met:
- The property is the borrower’s principal residence;
- The mortgage loan is a first lien mortgage originated on or before January 1, 2009;
- The mortgage is delinquent or default is reasonably foreseeable;
- The current unpaid principal balance is equal to or less than $729,750; and
- The borrower’s total monthly mortgage payment (as defined in Supplemental Directive09-01) exceeds 31 percent of the borrower’s gross income.
My notes:
1) The $729,750 number refers to the unpaid principal balance and does not include the capitalization of arrears.
2) A condition of HAFA is that the homeowner must provide lien releases and proof of clear title.
At the end of the day, perhaps HAFA is merely a political exercise in future spin. With the mid-term elections coming up, perhaps the program will be touted as yet another stellar effort by this administration to protect homeowners from ‘ruthless’ lenders. Regardless of the outcome, the ‘blame the banks meme’ is getting as tiresome as the ‘nobody could have seen this coming meme.’
To oversee their multi-million dollar baby, Geolo has found the resort an ideal General Manager/maternal presence in the form of Anna Olson, an immensely talented, yet thoroughly approachable executive, who was General Manager of 
Staging is the essential foundation from which your home’s marketing plan begins. Just as pricing your property too high could render your listing dead on arrival, so too will a poorly executed marketing plan. Staging isn’t exactly rocket science but there is quite a bit of science involved when staging is done correctly. We begin inside the home, as I have already addressed exterior prepping and staging in a prior
detachable floor screen, movable art and the ubiquitous curly willow display on a small bedside table. Moving along, in your dining room, your table should be set for four with the table expansion removed and excess chairs away from the table - otherwise the room will look small and cluttered. Another anecdote. I was looking through a photographer’s portfolio and came across a dining room that had been staged by a decorator rather than a stager. The dining room table was quite large and she set it for 12. What came to my mind was “no elbow room.” Additionally, it looked like she was selling a table, not marketing a house. In fact, that table became such a source of pride for her that the photographer didn’t even bother to shoot the room with a wide-angle lens – leaving one to wonder if there were 
any doors or windows or perhaps a fireplace in the dining room. Who knew
What “What would a building space look and feel like if it were designed to promote psychological and social well-being? How would it affect the senses, the emotions, and the mind? How would it affect behavioral patterns and sense of community? For insights, it is useful to look not at buildings, but at zoos. Zoo design has gone through a radical transformation in the past several decades. Cages have been replaced by natural habitats and geographic clustering of animals. In some places, the animals are free-ranging and the visitors are enclosed in buses or trains moving through the habitat. Animals now exist in mixed species exhibits more like their natural landscapes. And, as in nature, the animals have much greater control over their behavior. They can be on view if they want, or out of sight. They forage, play, rest, mate, and act like normal animals. 
What brought about this transformation in philosophy and design? A key factor was concern over the animals’ psychological and social well-being. Zoos could keep animals alive, but they couldn’t make them flourish. Caged animals often exhibit neurotic behaviors—pacing, repetitive motions, aggression, and withdrawal. In one famous example, an animal psychologist was hired by the Central Park Zoo to study a polar bear that spent the day swimming in endless figure 8s in its small pool. This was not normal polar bear behavior and the zoo was concerned about it. After several days of observation, the animal psychologist offered a diagnosis. The bear was bored. To compensate for this unfortunate situation, the zoo added amenities and toys to the bear’s enclosure to encourage exploration and play. Are there lessons from the zoo that we can apply to building design? The answer is clearly “yes.” Key lessons, applicable to all building types, include the following:”