The Home Affordable Foreclosure Alternatives (HAFA) program is scheduled to start April 5th. Since mortgage modifications (HAMP) are helping far fewer homeowners than anticipated, the HAFA program will offer cash incentives to sellers and banks who negotiate short sales or deed-in-lieu of foreclosure agreements. One major stumbling block to completing short sales has been the reluctance of banks holding second liens (mortgages or home equity lines of credit) to agree to short sales. To address this, Congressman Barney Frank of Massachusetts has issued a letter to the four largest US banks urging them to start writing down the principal of non-performing second liens on property.

The government’s intervention in housing has slowed the pace of foreclosure and leveled off home prices compared to prior economic projections (see here for a graphic on the leveling of home prices from Calculated Risk). The question remains whether prices will resume their downward spiral once the huge cash injection from Treasury and the Fed subsides. There are still about 5 million homeowners in default or foreclosure - nearly 10% of all mortgages. Though home prices have leveled and inventory has depleted, many of these distressed properties will be coming on the market through foreclosure or short sales.