Could a short-sale boom end the foreclosure crisis?

The federal Home Affordable Foreclosure Alternatives program goes into effect next week, and some mortgage industry professionals anticipate it will spur a short-sale “boom” that could help ease the pains of a distressed property market.

For underwater homeowners, a short sale is better than foreclosure because it’s less detrimental to the consumer’s credit score. Whereas a foreclosure could knock as much as 200 points off a FICO score, the damage from short sale is about half as bad.

In the past short sales took an average of more than six months to complete, CNN Money reports, and banks were often reticent to approve short sales because it meant taking a loss.

But with a surge of foreclosure activity expected over the coming months, many lenders are choosing the lesser of the two evils. The CNN article also reports lenders lose 50 percent on a foreclosure and 30 percent on a short sale.

For lenders and mortgage brokers interested in learning more about HAFA, check out “Lender incentives in new HAFA program could expedite short sales.”

Update: Lenders with HAFA questions can also check out this Q&A post on the Wall Street Journal‘s blog.

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