The real question is how many short sale borrowers are going to continue to pay a monthly mortgage payment up to 31% of gross income during the short sale process? I am not sure how many are going to do this knowing they are losing the house to short sale and only going to get $1500 at best at the end of the process.

I stumbled across your blog and I appreciate the tongue-in-cheek style of your first post on this topic and your direct communication throughout. Your mild cynicism no doubt serves you well.

I’ve been trying to better understand the likely impact of the HAFA program. After carefully dissecting an unrelated program from Treasury (PPIP), I’ve concluded that policy direction can be better inferred from careful analysis than reliance upon casual observation or Treasury’s public statements. In the case of PPIP, I concluded the program amounted to a stunning scheme to prop up asset prices at taxpayer expense (many subtle details; I won’t bore you).

My question on HAFA requires just a few points to set up. As you probably know, Treasury quietly announced on 12/24/09 that they would provide unlimited backstop to Fannie/Freddie losses thru 2012. I understand that you believe the program is optional for lenders, and presumably there’s no language you can find that would strong arm note holders into arriving at Minimum Net Proceed calculations that might be characterized as “fire sale” pricing. But what if Fannie/Freddie engaged in such pricing behavior? Could they not move the market substantially based on their share of loans? I cannot find a listing of participating lenders; however Freddie’s last quarterly 10Q statement referenced the HAFA program—it is clear they’ll be participating.

I am fully aware that Treasury’s strategy so far (across the entire debt crisis) has been to support asset prices and do anything to delay price discovery. However, if they were to shift strategy, for whatever reason, to force market clearing pricing, could they use HAFA to substantially move market prices? My understanding is that there are nearly 3/4 million homes in the HAMP pipeline now, most of them likely to be eligible for HAFA. With resets on ALT A and option ARMs ramping up, the deluge of supply could eventually be quite large. Given Fannie/Freddie have a large portion of loans, could they not be a major price setter?

I’m interested in whether you’d place any merit in the questions I’ve outlined above. To the extent that you do, do you see anyway to confirm the possibility before it obvious to everyone? Is there sufficient wiggle room under the plan to derive fire sale pricing, if a lender was willing to do so? Of course such a lender would be insane, unless others paid for their losses, and they had other reasons to expedite write-downs.

Thanks,
Wade

Note: Isn’t it amazing how most “fixes” that the government comes up with that are abbreviated by 4 letters (e.g. HAFA and HVCC) are synonymous with another set of four letters the first one being “S”