NEW YORK (CNNMoney.com) — Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

This Montecito home is actively listed for sale as a short sale. These new government programs will help make sales of properties like this much easier.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America (BAC, Fortune 500), the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.
Beware: You lost your house but still have to pay

“In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

This Summerland ocean view home is actively listed for sale as a short sale. These new government programs will help make sales of properties like this much easier.

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

By Les Christie, staff writer
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Sylvia Elizabeth Miller

President Obama

The Obama Administration’s “Making Home Affordable Program” offers three new federally approved housing relief programs designed to help homeowners avoid foreclosures:

 
• HARP – Home Affordable Refinance Program
   
• HAMP– Home Affordable Modification Program
   
• HAFA– Home Affordable Foreclosure Alternative


1. – HARP – Home Affordable Refinance Program
Homeowners who are current with their mortgage payments may be able to take advantage of today’s mortgage rates and keep their homes by refinancing to a 30- or 15-year fixed-rate loan via Home Affordable Refinance, a component of the Making Home Affordable initiative launched in early 2009.

The following list contains an overview of the HARP eligibility criteria:

• Home
• Must be owner-occupied

• Must be a 1 to 4 unit property
• Existing Mortgage
• Owned or backed by Fannie Mae or Freddie Mac
  
• Loan-to-value (LTV) ratio is above 80% but not more than 125%
• Borrower
  • Current on existing mortgage payments
  • Has enough income to support new mortgage payments

2. – HAMP – Home Affordable Modification Program

For those home owners struggling to stay current with mortgage payments that experience a change in income or other financial hardships may seek loan modification via HAMP (Home Affordable Modification Program). HAMP is one part of the administration initiatives to promote housing and financial stability. For many lenders, loan modification is a suitable workout option since lender losses on foreclosures can run high.

The following outline contains an overview of the HAMP eligibility criteria:

• Home
  • Must be owner-occupied

  • Must be a 1 to 4 unit property
• Existing Mortgage
  • Unpaid principal balance that is equal to or less than $729,000

  • Originated on or before January 01, 2009
  • Payments exceed 31% of borrower’s gross monthly income
  • For those who qualify, mortgage servicers determine how much of an interest rate deduction will be required to bring the borrower’s payment to less than 31% of gross monthly income.
• Borrower
  • Experiences a change in income or other [specific] financial hardships

  • At risk of imminent default or in default
• Trial Period
  • The Home Affordable Modification Program requires borrowers to enter into a Trial Period Plan before receiving a permanent Home Affordable Modification. During this period, borrowers must submit trial payments and all required forms and documents. If borrower has payment problems during this time, final approval will be denied and borrower will not go into full modification. If borrower pays consistently during this trial period, then the new loan terms will become permanent.

Note: To learn more about the HAMP program go to www. Makinghomeaffordable.gov. Free help is available from a HUD-approved housing counselor by calling 1-888-995-HOPE (4673) and asking for MHA HELP. It’s better to implement earlier than later. YOU MUST ACT NOW SO YOU DO NOT LOSE THE OPPORTUNITY FOR AN AFFORDABLE MORTGAGE PAYMENT.

3. – HAFA – Home Affordable Foreclosure Program

Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives, or HAFA, program. Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure. Sometimes, the complex and lengthy process has failed, resulting in foreclosure. HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process. Under this program, borrowers and mortgage servicers are provided financial incentives; and documentation is standardized to help facilitate short sales or deed in lieu of foreclosure if short sales are not successful.

The following outline contains an overview of the HAFA program:




• The Financial Incentives are:
  

  • $1,000 for servicers for successful short sale or deed in lieu of foreclosure
  • $1500 for borrowers/homeowners to help with relocation expenses
  • Up to $3000 toward cost of paying junior lien holders to release liens
• Other Features of this program include:
  • HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process.
  • Depending on market conditions, homeowners will get 90 days up to one uear to market and sell their property without fear of foreclosure
  • No foreclosures may occur during the marketing period specified in the Short Sale Agreement
• HAFA requirement include:
  

  • Property is principal residence.
  • Mortgage originated before Jan. 1, 2009.
  • Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
  • Borrower is delinquent or default is foreseeable.
  • Homeowner demonstrates hardship.
  • Borrower’s total monthly housing payment exceeds 31 percent of gross income.
  • Unpaid principal does not exceed $729,750.

Note: According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short sale agreement.

For more information on these new government programs, please visit www.MakingHomeAffordable.gov.

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Sylvia Elizabeth Miller

If you would like more information on the Santa Barbara Real Estate Market, or more specific information about its distressed listings within Santa Barbara, Montecito, Carpinteria, Goleta, Hope Ranch, Summerland, and/or The Santa Ynez Valley, please contact our Agent on Duty, Sylvia Elizabeth Miller. Sylvia has earned the nationally recognized Short Sales and Foreclosure Resource Certification.

Sylvia Elizabeth Miller, Senior Realtor® Associate
Broker: Coastal Properties, Inc
Email: sylvia@sanbarb.com
Cell: 805-448-8882 ~ Toll Free: 877-San-Barb
Web: SantaBarbaraConnection.com
DRE #: 00558548