Obama Expands Foreclosure Plan To Include Short Sale Subsidies

Hooray for Arizona!  Finally, someone is making sense and creating a solution for those of us whose house values have declined so dramatically it makes it impossible for us to sell our homes!   Announced by Treasury Secretary Timothy Geithner, the Obama administration is expanding its 75 billion dollar Making Homes Affordable plan to include additional financial incentives to lenders willing to help homeowners unload their properties at a loss when they owe much more than the present-day value of their homes.  The plan focuses on short sales and deed-in-lieu transactions as a way for homeowners to get rid of their homes due to the fact that they don’t qualify for the loan modification or refinance part of the Making Homes Affordable plan.  The loan modification experts at AdjustMYLOAN.com think this is fantastic seeing how almost 40% of homeowners in Arizona are underwater and have no way of getting out of their properties.  Cody Sperber, a manager at www.adjustMYLOAN.com has been negotiating short sales for four years now and has completed hundreds and hundreds of short sales over his career.  “One of the biggest problems a Realtor experiences when negotiating a short sale is the fact that it takes so long.  It is extremely frustrating to spend 40-50 hours negotiating only to have your buyers back out due to the fact that they found a better deal during the 4-6 months it took to get an answer from the lender(s)” says Sperber.  This plan seems to address this exact problem and hopefully many lenders will participate in the program and speed things up!   Below is the Arizona Republics article about the plans expansion:

Relief expanded for struggling homeowners

New U.S. programs to help those too far underwater to sell

Kevin G. Hall - May. 15, 2009 12:00 AM
McClatchy Newspapers

WASHINGTON - The Obama administration unveiled new programs Thursday designed to make it easier for homeowners who owe far more than their houses are now worth to sell those homes at a loss and have their remaining debt forgiven.

The programs, announced by Treasury Secretary Timothy Geithner, are the latest additions to Making Home Affordable, an evolving $75 billion plan that tries to break the national housing crisis into separate pieces, attacking the problem on several fronts.

The first two legs of the program sought to help borrowers refinance into today’s low mortgage rates, or if they’re behind on payments, to seek loan modifications to avoid foreclosure.
President Barack Obama described these steps at a town-hall meeting in Albuquerque on Thursday: “The bank has to lose a little bit of money on what they were expecting on principal and interest. On the other hand, the homeowner, if they make this agreement with the bank, they’ve got to agree that when prices start going up again, they give up a little bit of equity to repay the bank. But either way, everybody is better off, including the community, if people stay in their homes.”

Thursday’s announcements address situations in which borrowers can’t qualify for either of those programs and are at risk of losing their homes. The administration will now provide additional financial incentives to lenders willing to help homeowners unload their properties at a loss when they owe much more than the present-day value of their homes.

The incentives apply to lenders who agree to allow homeowners to conduct short sales or deed-in-lieu transactions instead of going into foreclosure and dragging down prices for neighbors and adding to the already large national inventory of empty homes.

In a short sale, borrowers sell their home at current market value and all proceeds go to the lender. The homeowner is then no longer responsible for the difference between what is owed and the home’s sale price. There’s still a hit to a borrower’s credit rating but not as damaging as it would be in a foreclosure.

When there are no buyers, lenders sometimes accept a deal in which the borrower transfers ownership of the property to the loan servicer, who acts as a bill collector for investors who own pools of U.S. mortgages. This sort of deal is shorthanded as a deed-in-lieu of foreclosure, or deed-in-lieu.

Under the new plan, servicers will receive compensation of up to $1,000 per short sale or deed-in-lieu transfer accepted. As an incentive to avoid foreclosure, borrowers could be paid up to $1,500 in relocation expenses. Because many homes have second mortgages, the Treasury will pay lenders up to $1,000 to accept the deals instead of going to foreclosure.

Borrowers will get 90 days to achieve a short sale and must list it with a licensed real-estate agent. Borrowers in areas of severe market downturn - such as Arizona, California, Nevada and Florida - will get up to a year to reach a short sale. After that, deed-in-lieu transfers occur.

To discourage borrowers from simply unloading their homes, they must first be deemed unable to get a loan modification. The program is voluntary for most lenders but mandatory for banks that received taxpayer-bailout money.

For homeowners in states where home prices have fallen sharply, the administration also rolled out Thursday a complex insurance program that will protect lenders from further home-price declines when they are willing to modify loans. That program is capped at $10 billion.

The cost of all these new programs will be paid from a $50 billion pool of taxpayer bailout money set aside to address the housing crisis.

Experts welcomed Thursday’s initiative.

“We have heard from Realtors that the extensive delay in the short-sale process had caused many buyers to go elsewhere and have left many would-be sellers with no option but foreclosure,” Charles McMillan, a Dallas Realtor and president of the National Association of Realtors, said in a statement. “We are all pleased that the government has stepped in to help homeowners and those wishing to buy a home.”

Rick Sharga, senior vice president of RealtyTrac, a foreclosure-research firm in Irvine, Calif., said the effort will face hurdles, however.

“A lot of the investor-owned loans have (private mortgage) insurance. From the investors’ perspective, they’re going to be better off foreclosing, collecting the insurance, then disposing of the property,” he said. “Short sales, unfortunately, are a 20th-century solution to a 21st-century problem.”

RealtyTrac publishes widely cited foreclosure statistics. Its latest findings, as of April, showed more than 1 million property owners currently in foreclosure proceedings.

“It’s actually a fraction of what’s out there, and that doesn’t even get to the seriously delinquent loans that aren’t in foreclosure,” Sharga said.

The deed-in-lieu may prove more successful, he said, because some areas with severe home-price drops have many homeowners who owe significantly more than their homes are worth.

If you are interested in seeing if you qualify for any of the Making Homes Affordable options, give our loss mitigation experts a call at 1-800-557-7573 and get a FREE CONSULTATION today!