New Short-Sale Program Coming in April

The government is trying everything they can to end the mortgage crisis and there is another new program they have devised in hopes of helping the 5 million + homeowners behind on their mortgages coming in April. “This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.”

So far, President Obama’s $75 billion loan modification program has only helped a small amount of those 5 million + homeowners. The government acknowledges that more needs to be done and the efforts need to be aggressive. They do not want to see all these people lose their homes.

As of April 5th, homeowners will be encouraged to sell their homes by way of the short sale process. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. The government wants to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender.

Here is an example of a short sale process – An owner owes $150,000k on his home. His agent has an offer of $51,000 but the bank, in order to agree to a short sale, wants to see an offer of at least $91,000. To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread the cash around. “Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in ‘relocation assistance.’”

With this new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

There are skeptics with short sales in general, as there is with any new program. It will be interesting to see if this short sale process is more effective and serves more of the 5 million + homeowners underwater. Let’s start seeing some progress!