Now fueled to a growing degree by prime borrowers, the foreclosure crisis is not abating, and U.S. Treasury officials are hoping new incentives will accelerate short sales and other alternatives to rescue homeowners.
Starting on April 30, amendments to the government’s Home Affordable Modification Program (HAMP) will offer new incentives to lenders to accelerate short sales or DILs.
New Treasury guidelines for foreclosure alternatives will require lenders to consider borrowers for a short sale on their primary residence 30 days after missing two consecutive payments on a modified loan or after the borrower requests a short sale.
U.S. officials are also offering incentives. It will pay up to $1,500 for a homeowner to relocate; $1,000 to lenders that accept a sale to cover processing expenses, and a maximum of $1,000 to help settle a second mortgage or subordinate lien. The Treasury plan requires that borrowers be fully released from future liability for the debt.
This year, lenders are increasingly resorting to the foreclosure alternative, with figures showing a tripling of short sales in the first half of 2009, compared to last year. But U.S. Treasury and bank regulatory officials say foreclosures are still greatly outpacing the alternative of short sales or DILs, deeds-in-lieu of foreclosure. For every short sale or DIL as of the first half of 2009, there were 23 foreclosures, according to the Office of the Comptroller of the Currency.
In a short sale, the lender allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage.
In the much less common, deed-in-lieu of foreclosure, the borrower voluntarily transfers ownership of the mortgaged property to the lender to fully satisfy the total amount due on the first mortgage. The lender’s approval is contingent upon the borrower’s ability to provide marketable title, free and clear of mortgages, liens and encumbrances.
According to the Treasury, the new incentives simplify and streamline the use of short sales and DIL options by incorporating the following features:
- Complements HAMP Program by providing viable alternatives for borrowers who are eligible.
- Utilizes borrower financial and hardship information collected from HAMP program, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing.
- Prohibits the lender from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
- Uses standard processes, documents and timeframes.
- Provides financial incentives to borrowers, servicers and investors.
See related articles:
Obama to Lenders: Ease More Mortgages or Face Penalties
Treasury: Lenders Failing to Help Stem Foreclosures
The smaller Bank & Credit Unions are more inclined to help borrowers because they aren’t getting bailed out like the big Banks are. When you lose, they do too. The smaller Banks have huge inventories of repossessed cars and foreclosed homes too that has led to over 130 Bank failured this year alone (see: http://www.repofinder.com). Until the little guys get the same treatment as the big guys, the problem will not end.
Short selling the property is the best way if the banks speed up the process. There is an average of waiting time to get approval from the bank of 6 months. This is really a big problem because by the time the bank approved the short sell the houses value have gone down or the qualified buyers has walked away.
Although this is a fantastic step in the right direction…
The Problem is and has been that investors are required to have 90 seasoning in order to end sell the property to an FHA recipient. You would think the FDIC would want to attempt to stem the blood loss by helping the investors who are buying the majority of short sales (estimates of up to 70%) and thus helping the banks and neighbor hoods by not allowing these to fall into the REO category in which prices can fall an additional 26% or higher causing an overall decrease on every other properties in the area. Ms. Bair DROP the seasoning requirement for investors on short sales and watch how fast ALL the short sales get bought up.