Short Sales: Treasury Announces New Programs For Distressed Homeowners

The Treasury Department on Thursday announced two new programs to help distressed homeowners avoid foreclosure. One program will provide incentives for lenders to modify mortgage terms, and the other will streamline the short sale process, in which a lender agrees to a sale for less than the value of the homeowners' mortgage.

"Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines," said Treasury Secretary Tim Geithner in a statement. "If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future. These are critical steps in stemming the foreclosure crisis and stabilizing the housing market, both of which are critical to our economic recovery."

Foreclosure Alternatives, one of the new programs under the administration's Making Home Affordable effort, will make the short sale process easier for a borrower who is eligible for a Home Affordable Modification but who "does not qualify for a modification or cannot maintain payments during the trial period or modification," according to the Treasury.

A short sale is a homeowner's last resort before foreclosure if a loan modification is out of reach. Short sales are less damaging to homeowners' credit and are less costly both for borrowers and lenders -- one study found that loan losses average 19 percent with short sales, compared with 40 percent with foreclosures. But more than three-quarters of short sale deals fall apart, mostly because lenders drag their feet after receiving offers. And as those properties languish vacant on the market, they drag down property values for entire neighborhoods.

The real estate industry hailed the Treasury's announcement.

"Obviously we're excited about it," said Mike Ryan, senior vice president of global real estate company Re/Max, in an interview with the Huffington Post. "We had meetings this past week with FHFA and Fannie Mae staff and we provided them with information that's very much parallel with what we're reading today. We're very excited that there's a focus in the administration on short sales."

Earlier this year, Re/Max began offering courses to give agents expert certification in the short sale process.

"In the last 60 days we've registered over 5000 people" as certified distressed property experts, Ryan said. "We've been doing everything we can to spread the word about short sales and we're really happy to see now that somebody's taking notice."

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If a short sale doesn't go through, the next step for an eligible borrower is to hand over the keys to the bank in a process known as deed-in-lieu.

Under the new program, mortgage servicers "may receive incentive compensation of up to$1,000 for successful completion of a short sale or DIL," and "[b]orrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses."

Another part of Foreclosure Alternatives will encourage holders of second mortgages to agree to short sales by offering "$1 for every $2 paid by the investors, up to a total contribution
of $1,000" from the government.

The other program announced Thursday, Home Price Decline Protection Incentives, is designed to "address investor concerns that recent home price declines may persist," according to the Treasury. "Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed. HPDP payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market."

The new programs will provide needed boost for Making Home Affordable, which so far has only helped 55,000 modify their loans, the New York Times reported on Thursday. There were 342,000 foreclosure filings in the last month alone.

Last week the Huffington Post asked readers to tell us about their frustrations with the short sale process. We received dozens of responses, which we plan to share in future stories.

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Comments

[plaidsportcoat]

HOW is this helping the homeowner??? Helping them be homeless? Sheeple, get in the street!

[sueinmn]

Mr Geithner please make a modification possible for me also! I have called and called my bank and I am never aloowed to speak with the home assist people and everyday I am told another story about how the banks do not do modifications. They refuse to let me speak with a real prepesentative and they refuse to have anyone call me back. How do you work with the banks when they refuse to speak with you! I have not misses a payment yet but one of us IS laid off! You give these voluntary programs for the banks to work with us and they refuse to!! Mr Geithner, has anyone yet to tell you that the banks are refusing to even speak with people much less work with them?? You waste your time and tax payers money creating these peograms on a voluntary basis. Banks do nothing for us but raise rates!! Dont you know that? Keep giving these F banks all the rest of what the treasury holds though, they need your help! The banks havent gotten all their is to get yet and they will.

[Carolab]

Sue, try these people: http://www.naca.com

[RonPaulFan]

WinterParkMom, Tim Geithner will not help you. Suntrust will not help you. The banks have been given hundreds of billions of dollars, and all of you continue to blindly support the administration even though the banks are not using that money to help homeowners. This is the greatest scam of all time.

[Weirdwriter]

Um, nope. The greatest scam in recent memory was in believing the Republicans and an unfettered free market would bring a stable prosperity to all.

[sej100]

believing the current Repugnant party is the greatest mistake one can make.

[olmossy]

People must Understand Free Market does not mean free people,
In 1776 there was a Free Market, the Free Traders, and Bank of England ruled the world.
It was so free that two ships met inthe Atlantic ocean, and Traded a boatload of Scotsmen for a boatload of Bananas. Now Thats Capitalizm and Free Market at it's best.
That year we invented FREE PEOPLE!

[ATLiberal]

FALSE!

I am in the mortgage industry, and I am closing deals every under the administration's plan with Fannie Mae that allows you to refinance at the same excellent rates available to every well qualified borrower even if you are upside down in your house. Up to 105% of your loan-to-value.

So if you had 30% equity in your house, and that has dwindled down to 10% equity, you can refinance at the same rate as if you still had 30%. With NO mortgage insurance. In many cases, appraisals are waived. These programs ARE working and they are helping people lower their rates and improve their cash flow during tough times.

[ATLiberal]

OOPS. Meant "every day" in the 1st sentence.

[VictoriaP]

well, goody. what about the remaining millions of people whose credit was destroyed when their loans adjusted and they cannot qualify under the fannie plan. that is a joke and is not a solution to help people who never missed a payment, until their illegal, predatory loan adjusted.

[jrmarsh]

mmmhhmm, and how does this help a homeowner who's bank sold their loan to Goldman Sachs?

Who (at least in California) has 105% equity?

[olmossy]

Thanks ATLiberal, that may help someone with their Bank.

[WeMustSpeakOut]

My blood boils every time I see this guys face.

[iblog]

ECHO !!!

ECHO Echo Echo Echo echo echo echo echo

[WinterParkMom]

Mr. Geithner....Can you get this info to suntrust and ask them to call me back? I put in for a modification in February. They refuse to let me talk to the person who is supposedly handling my case and tell me he'll get back to me when he gets to my paperwork. It's now May. My pay has been cut and I'm having no luck finding a part time position to make up my pay, but my mortgage is still being debited every month. BTW my house is in Florida and my home value has declined 20-30K

Please Mr. Geithner, who can I talk to?

[Weirdwriter]

Who are your state and congressional reps?

[plaidsportcoat]

That's the right question. And you need to be IN their office every time you can.

[felisa11]

if you live in a bright red state it doesn't matter, Even the democrats are Repugs

[felisa11]

I am having the same problem with Suntrust. Who owns them by the way?

[Weirdwriter]

Have you Googled? That's a start.

Also, try calling your state's biggest city newspaper's finance/business department. This kind of stuff is news and a smart reporter will always be looking for a credible person to talk to for a possible story.

And if your congressional reps are up for election (and they're always running, it just depends on the urgency), send an email, a print letter AND call, and get your friends and kin to call. They'll pay attention.

[Carolab]

http://www.naca.com

Call them. They are great..