Could An Increase In Incentives Impact Short Sales?

How Will These Incentives Impact the Short Sale Market?

Freddie Mac has announced that it will increase the amount of incentives paid to services for completing short sales.  Currently, under the Home Affordable Foreclosure Alternative (HAFA) the Treasury provides $1,500 for servicers and up to $2,000 for investors who pay up to $6,000 of the short sale proceeds to subordinate-lien holders. The exact amount that these incentives will increase has not been reported as of this writing.  But Freddie Mac hopes that an increase will encourage more servicers to participate in the program. Despite the generous incentive currently available, few servicers are taking advantage of the short sale program.

“…servicers completed only 27,600 short sales and deeds-in-lieu of foreclosure through December. Of those, only 1,600 were for GSE-backed mortgages, according to Treasury Department data released Monday.”

The above figures stand in stark contrast to the 112,935 short sale transactions completed by Fannie Mae and Freddie Mac just in the first three quarters of 2011. But the reasoning behind servicers’ lack of participation in the HAFA program may have more to do with the process than their willingness to take advantage of incentives.  In order for a servicer to offer a homeowner HAFA they must first go through the HAMP program which can be time consuming.  Many borrowers who ultimately cannot participate in HAMP due to ineligibility or finances may simply walk away from the property instead of trying to go through a short sale process.  Of course this depends on various factors such as the location of the property and the availability of motivated buyers.  Even once the property makes it to the HAFA program getting a short sale approve can take a considerable amount of time and energy. Freddie Mac may need to raise incentives considerably and offer a more streamlined process if they want to significantly increase the amount of short sales in the HAFA program.