The California Association of Realtors, whose members are frustrated by the dearth of short sales, has created a task force to examine the shortcomings of the government's Home Affordable Foreclosure Alternatives (HAFA) program.
The task force will investigate why there are three different versions of HAFA and why fewer than 400 successful HAFA transactions had been completed nationwide through the end of September.
But the trade group has already identified one culprit: servicers.
"Servicers are ignoring HAFA guidelines altogether," Beth Peerce, president of the California Realtors, wrote in a letter last month to Treasury Secretary Tim Geithner.
The biggest complaint is that servicers take so long to review and approve short sales that potential buyers give up or walk away from deals — even after the agent has spent hundreds of hours collecting paperwork and sending it to the servicer for approval.
Servicers also are flouting the program's requirements with no repercussions or sanctions from the government or Fannie Mae and Freddie Mac, Peerce said.
Though HAFA requires that servicers respond to a request for approval of a short-sale offer within 10 business days, many servicers take months to get back to the borrower, she said.
Short sales also are supposed to close within 45 days, but that rarely happens, Peerce said. Even a 60-day or 90-day close is unheard-of, she said.
"In practice, servicers are just not complying and we believe that the regulators have to find a way to make them do so!" Peerce wrote.
Not surprisingly, second liens are a major holdup and many lienholders refuse to accept a HAFA-approved payoff of $6,000 and typically demand more from the borrower.
"We have frequently seen them [lenders] demand additional funds to be paid, secretly, outside of escrow, which may constitute loan fraud against the senior lienholder," Peerce wrote.
The trade group wants regulators to mandate that the HAFA process, which is now voluntary, be used for all short-sale transactions.
"The government's unwillingness to mandate action by lenders to stem the current housing crisis relegates HAFA to yet another well-intentioned voluntary program which servicers, lenders and investors are all too happy to ignore," Peerce wrote.