In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their Denver area homes, and nationwide with their Making Home Affordable program.  Now it will take a brand new approach: encouraging underwater borrowers to leave their homes more quickly.  This latest program is one of the administration’s most aggressive attempts to grapple with a longstanding problem that has defied solutions.

Upward of five million households are behind on their mortgages and are at risk of foreclosure, and 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. 

The new program, set to take affect in about three weeks - on April 5, could encourage hundreds of thousands of delinquent borrowers who have been unable to modify their loan to shed their houses through a process known as a short sale (selling a home for less than the mortgage balance). Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. 

To serve as incentive to bring the various parties to the table, the government intends to spread its 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.”
Should the incentives prove successful, the short sales program could have multiple benefits.
For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

In order to curtail fraud, under this new 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 myriad other potential conflicts over short sales that may not be solved by the program, whose details are still being fine-tuned, but the administration is obviously hopeful that it will pave the way for major lenders to more readily work with borrowers in the short sale process.

Are you or someone you know facing foreclosure in the Denver area and think you might benefit from this new federal program?  If so, give the experts at the Bandy Team a call.  We will let you know what your options are and guide you ever step of the way with our experience and knowledge of the Denver metro housing market. 

Marianne Bandy
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