Program Will Pay Homeowners to Sell at a Loss (NYT)

Just when grandpa thought the insanity might slow down...

New York Times (3/7/2010): In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

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.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

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.”

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the 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.

Link to complete New York Times Article


Grandpa is so old school
“Strategically default” appears to be the new school definition for walking away from an obligation.


Grandpa sends an empathetic bear hug to anyone experiencing an illness resulting in the double whammy of reduced income accompanied by mounting medical bills or losing one’s job with no prospects of a replacement position on the horizon. These are clearly out of one’s control situations and kudos to all who make the commitment to take care of their family.


The “wonderment” stems from other reasons for being upside down on a mortgage such as multiple refinancing as one’s home possessed an ATM like quality. In other words, once upon a time, the home had measurable equity however it was removed. Now, the equity is spent, the debt exceeds the current value of the home and now one simply “strategically defaults”?


“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.


And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”


EASIER!!! Our grandparents did not have it easy and they made countless, unselfish sacrifices during their lifetime in an effort to make life a bit more palatable for their kids and grandkids. Now our grandkids are going to be stuck with "relocation assistance".


This "give away" country has gone beyond insanely absurd! It appears not only are the banks "too big to fail", the entire country is "too big to assume responsibility". How can anyone justify transfering their financial responsibility to our children and grandchildren?


ENOUGH IS ENOUGH PEOPLE!!