This post first appeared on Minyanville.

It wasn’t so long ago that foreclosure relief programs had near-unanimous support in the political community. There were elections afoot after all, and something had to be done about the millions of homeowners facing the loss of their home.

But as data continue to show that loan modification and short sale initiatives are floundering and austerity emerges as the buzz word for the upcoming 2012 elections, such programs are on the chopping block. The House of Representatives passed two bills last week that evidence the lack of support for foreclosure prevention programs that have failed to stabilize the tattered housing market.

Last Thursday, the House voted to end the Federal Housing Administration’s short refinance program, which aimed to help borrowers refinance their underwater mortgages, and on Friday passed a bill killing a Housing and Urban Development program that provides interest-free loans to homeowners who have lost their jobs. But as HousingWire reports, any push to terminate the programs may not make it to the finish line. A source within the Senate called the bills “dead on arrival” and the Obama administration said the president would veto the bills if they make it to his desk.

Meanwhile, House Republicans and even some House Democrats are working on similar bills to kill the Home Owner Modification Program, or HAMP, and Home Affordable Foreclosure Alternative, or HAFA, which push banks to modify delinquent mortgages and accept short payoffs, respectively. A short payoff (also known as a short sale) is when a bank allows to the homeowner to sell the home for a lower value than the mortgage. Both programs were Obama-led initiatives that promised relief for troubled borrowers. Actual results have been underwhelming, at best.

The specter of ending borrower assistance programs is a mixed bag for big banks like Wells Fargo (WFC), JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC), who still retain billions in exposure to delinquent mortgages. On the one hand, less federal pressure to accept short sales and complete loan modifications could mean that banks take fewer losses in the near term.

On the other hand, homeowners eligible for assistance would are almost certainly end up in foreclosure if the programs get nixed. Foreclosure remains the least “profitable” exit scenario for banks, as carrying costs, home price depreciation and liquidation expenses make taking a loan through the entire repossession process a costly endeavor. A higher foreclosure rate means that banks would likely increased losses from a larger portion of their delinquent loans ending up real estate owner, or REO.

Certain real estate investors however, would cheer this possibility, as recent foreclosure moratoria stemming from last year’s robo-signing scandal has left foreclosure buyers starved for projects.

In the long run, winding down ineffective foreclosure prevention programs is the healthiest option for the housing market and the nation’s homeowners at large. The longer millions of distressed mortgages loom on the horizon, the longer a true recovery in the housing market will be forestalled. Without federal pressure, banks are more likely to make modification and short sale decisions based on economics, rather than politics.

Despite being now five years into the housing downturn and with prices nationwide down by more than 30%, buyers remain wary due to the vast uncertainty about how the logjam of potential foreclosures will play out. And until the we clear the overhanging supply that will be seeping out into the market, real estate will continue to be a drag on the economy.

This post first appeared on Minyanville.

The Obama Administration’s latest salvo in the war against foreclosures, Home Affordable Foreclosure Alternatives, or HAFA, is but a week old and already America’s real estate establishment is trying to cash in.

HAFA aims to step in where Home Affordable Modification Program, or HAMP, fails. In other words, when borrowers are so far behind or upside down that a modification doesn’t make sense, HAFA tries to provide an alternative. Whether it be through Short Sale, where lenders let borrowers sell their homes for less than the amount of the outstanding mortgage, or “deeds-in-lieu,” where homeowners hand their lenders the keys in exchange for absolution of the debt, Washington wants to make getting out from under crippling mortgage debt a little bit easier.

Realtors are licking their chops.

Short sales are notoriously tough to get done, since voluminous requests have bogged down the back offices of big banks like JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC). Approving short sales can take months, and real estate agents lose commissions when buyers walk for lack of patience or if they find another deal. As a result, short sales sell at as much as a 10%-15% discount to regular sales or even bank-owned homes, simply because most buyers (and agents) don’t want to deal with the headache.

HAFA wants to fix all that. By providing cash incentives for interested parties (lenders, loan servicers, and borrowers) to push through short sales, Washington has devised yet another way to try and help distressed homeowners. But as I wrote last week in The Unintended Consequences of Treasury’s HAFA Program, these payments may be too small to push a material number of short sales through the system.

When a buyer makes an offer on a short sale, it first must be approved by the homeowner, then sent on for approval by the bank. More often than not, sellers place the asking price as high as possible in hopes that an offer will be good enough to get the bank’s attention. And more often than not, overpriced short sales get stale as buyers move on in favor of better, lower-priced homes.

But in the few days since the Treasury Department announced HAFA, a strange thing has started happening. Short sale prices are being slashed and buyers are stepping in. The logic makes sense: If you were an underwater borrower (or his or her Realtor), why not slash your asking price to well below the amount you owe, grab an offer, and send it through. You never know what you may get. After all, the president effectively announced that he’d be asking lenders to take it in the shorts for the common good. So banks, eager to keep their names out of the papers as uncooperative, may be eager to fill their government-mandated quota for HAFA short sales and approve just about anything that comes in the door.

And, of course, Realtors then get to collect their commission. A commission which HAFA mandates must be higher than the going rate for distressed sales.

A mere 60 minutes outside the bustle of the Bay Area, nestled in redwood groves and winding mountain byways lies the hamlet of Boulder Creek. The town boasts a casual, yet lively downtown where tourists and locals alike check out local coffee shops, restaurants and art galleries.

Just outside of town the golfing inclined can visit the
Boulder Creek Golf and Country Club, one of the few locales where errant tee shots can collide with redwoods that have stood since before the California gold rush.

Oh, and there are also contemporary short sale properties available for sale, a block from the fairway. And with a waterfall to boot. Looking for that golf retreat where cell phone service doesn’t reach? Here it is …

The only question is whether it’s a: DEAL or NO DEAL?

Address: 270 Lake Dr., Boulder Creek, CA 95006 (MLS Listing)
Status: ACTIVE
Bedrooms: 2; Bathrooms: 2
Living Space: 1,700 sq ft
Lot Size: 15,246 sq ft
List Date: 5/28/2009
Original List Price: $485,000
Current List Price: $461,000
MLS number: 80926178

Real Estate Agent Comment: This contemporary home is situated on Hare Creek with a private water fall. Well cared for home with many custom features like travertine tile, tile floors, exotic wood decks, loft, open beamed ceilings, spacious rooms and much more.

DEAL or NO DEAL?
Comment below and tell us what you think!

This property is one of the many, many, many small condos for sale in Orange County. Santa Ana is centrally located next to what used to be the center of mortgage lending in this country, which has quickly turned into the center of a whole bunch of unoccupied commercial space.

All kidding aside, condos like this one are starting to make a lot of sense to buyers considering whether they should make the jump from renting to owning. This unit is nothing to write home about in terms of amenities, is not near the beach and the nearest Starbucks is more than a mile. That’s an eternity for Southern California.

But — at around $1000 per month after mortgage payments, insurance, taxes and HOA dues, it’s not a bad deal. The trouble, of course, is whether your $130,000 investment could quickly become a $100,000 investment, or worse. Sure, you may be paying less to own rather than rent — a market characteristic many cite as bottom-inducing — but if you’re losing $10,000 per year in equity, who cares?

This property is a short sale, and thus more complicated to buy than a foreclosure, and there’s a ton of similar supply nearby. That being said, activity is picking up as buyers are dipping their toes back into the market at new, lower prices.

Address: 2511 West Sunflower Ave, T15, Santa Ana, CA 92704
Status: ACTIVE
List Date: 3/14/2009
List Price: $139,000
Cirios Value: $130,000
List Price vs. Cirios Value: +6.9%

For a complete Cirios Valuation, click here for our CLEAR report, or on the image to the right.

Have a home you’d like Cirios to use for our next House of the Week?

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