Hark, the herald angels sing! Or, it just might be the sounds of presidential daughters Sasha and Malia Obama singing away as they work overtime in the basement of the White House, printing more money for yet another attempt to prevent sales of existing homes from flat-lining.
Indeed, the Obama administration and the U.S. Treasury department are in a giving mood again, just in time for Christmas. As the country twittered and tittered over the latest developments in DinnerGate and whether or not Tiger Woods' wife used one club or the entire bag to send him stumbling over himself to escape her during TigerGate, the government leaned on the Treasury department to provide guidance for additional funding and sales measures on short sales.
No doubt succumbing to the vigorous lobbying efforts of the National Association of Realtors and the Mortgage Bankers Association of America, the Home Affordable Foreclosure Alternatives Program will provide financial incentives and simplify the procedures for completing the short sale transactions that currently are choking the mortgage loan pipeline.
A short sale is more favorable to real estate agents and lenders, since it is the step before foreclosure where homeowners still have an opportunity to get out of the loan obligation if a modification is not possible. One benefit of a short sale for the real estate agents and bankers is the homes are generally not in such bad disrepair; whereas a foreclosure property is often damaged and distressed by remorseful tenants who often leave the home stripped of everything but the foundation and the frames.
Further, the short sale is beneficial to the existing homeowner who is trying to get out from under the mortgage before foreclosure is initiated. For example, on a credit report, a foreclosure generally remains on the report for up to 7 years, whereas a short sale can migrate off the report within 1-2 years. Most importantly for the consumer, when a lender accepts an offer on a short sale property, the lender can in some cases forgive the deficiency balance, which is often the difference between what is owed on the home and the sales price.
According to published reports, "the incentives, first announced in May, expand the government's Home Affordable Modification Program, known as HAMP, that has seen limited success in lower payments for distressed homeowners". Among the many reasons that the process has continued to drag to this point have been lender's not sufficiently understanding the programs; banks and mortgage companies not having enough support personnel in place to administer and execute the program; and, as criticized by real estate agents all across the country, banks bog down the process by haggling on the offer to buy, or, getting into adversarial negotiations with a subordinate lender.
The basics of the Home Affordable Foreclosure Alternatives Program financial incentives for completing short sales or a deed-in-lieu of transaction are:
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Borrowers would receive $1,500 from the government in relocation expenses.
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Servicers receive $1,000 from the government per transaction.
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Second liens holders can receive up to $3,000 of the sales proceeds for releasing their liens.
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First lien investors can receive $1,000 from the government for signing off on payments to subordinate lien holders.
- Borrowers must be fully released from any further liability.
The new guidelines are designed to spur the process along to an amenable resolution for all concerned; and, they come at a time when real estate analysts predict more foreclosures loom on the horizon as the economy continues to sputter and stall. In Miami, Florida for example---one of the epicenter's of the national housing crisis-the new guidelines will be attached to a market where 100,000 homes are already in foreclosure; additional new foreclosures number 7,000 per month, and the unemployment rate exceeds 11.2%.
While the Treasury's attempt to prod lenders and mortgage bankers to modify mortgages and increase execution of short sales is indeed commendable, it does little to resolve the core issue in any lending transaction: in order for loans to be repaid, borrowers must have jobs in which the lender can reasonably rely upon income used for repayment of the obligation. Without a national job-creation effort that encourages businesses large and small to hire full-time workers, these guidelines are likely to remain yet another wad of cash stuck to the wall of the economic dam in an attempt to hold back the floodwaters.
For further details, please see
http://financialstability.gov/latest/tg_11302009b.htm
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