Short-Sale Program: Obama Administration Will Test Program To Let Homeowners Sell For Less Than They Owe

nytimes.com:

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.

Read the whole story: nytimes.com

Comments

[Lorianne]

06:56 PM on 03/09/2010

The Warning
http://www.pbs.org/wgbh/pages/frontline/warning/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid

[Lorianne]

06:39 PM on 03/09/2010

Love the dumbed down headline ! Keep em up H P

The Obama Administration is not going to pay anyone to do anything.
Their going to get the TAXPAYERS to pay people to sell their house for a loss.

Boy, that sounds like a really effective program.

snort

[PhilipTaylor]

04:16 AM on 03/09/2010

ADVANTAGES OF MORTGAGE WORKOUTS WITH HOMEOWNER STAYING:

1. Families and Children have consistency in a home they chose
2. No or LOW Vandalism or stripping of fixtures
3. CASH FLOW for Banks
4. Unlikely Bank can sell at a Decent Price with an over-supply of homes
5. Costly Foreclosure Proceedings Banks don't get it back.
6. Market values for neighborhood will remain stable
7. Saves Government Money - including Fannie
8. Avoids MORE SCAMS
9. Reduces or Removes “Underwater” situation
10. Keeps worker productivity higher
11. Helps homeowner build Equity instead letting the Banks buy LOW - in effect!
12. Avoids possible severe tax problems for family

EXCEPTION NOTE: Some Banks want Homeowners to FAIL to collect SHORTING BETS on Derivatives! Not much that can be done without a FRAUD INVESTIGATION!

[strangelet]

03:22 AM on 03/09/2010

@Carolab:

1. I'm happy to see that you have located the caps lock key. Honestly, too much shouting just makes my eyes skip, which is too bad because you make some points that deserve consideration.

2. I do not happen to be a broker, and I also do not happen to be underwater on my home loan. I am also "involuntarily retired" -- that is, I'm old and unemployed.

3. If you were a successful broker prior to the bubble bursting, I suspect that your savings dwarf mine -- and those of most Americans -- but that is actually kind of irrelevant to this discussion.

4. You have derided the proposed short-sale program, and (I think) suggested instead a Federal 0% interest loan program to replace some underwater loans. That's a decent idea, but it has a rather big practical problem. Let's suppose 4M loans need help, and that the average loan is $200K. Paying them off would require $800B. Do you seriously think that such a plan would make it through today's Senate?

5. This would also be yet another bailout of banks. The lenders would all be made whole. The government (aka taxpayers) would absorb all residual risk, and even if there were no defaults at all, we (the taxpayers) would still be losing the imputed interest on $800B for up to 30 years.

6. BTW, my personal fave is to require the lenders to change the interest rate to 3%, but I know that suffers from legal

[Carolab]

03:58 AM on 03/09/2010

Thanks, strangejet. I just got a little rattled by a couple of posters who misunderstood where I was coming from.

I wasn't successful and I wasn't unsuccessful; I made a modest living and I didn't spend everything I earned (we are frugal people). We did save a few bucks, not much, but enough so we didn't starve for the past two years although we are now rapidly running out of funds.

I think we can put anything through the Senate with reconciliation as long as it doesn't add to the deficit. If we took the same money that's being used on HAMP and this current idea and instead put it into a new program to lend (which isn't the same as deficit spending) at zero or near-zero percent, we could rescue homeowners from foreclosure. That's what FDR with the HOLC and it worked, and a lot of economists that I respect have recommended we return to that model. Also, Fannie Mae was begun in 1938 in order to provide affordable housing to low-income borrowers, the loans were sold on the secondary market which brought revenue in, and it worked well until it was privatized in 1968 and until the Bush administration pushed it into subprime lending with a vengeance. It really wouldn't be another bailout of the banks because the existing loans would be canceled and new loans rewritten on terms that the homeowners could afford.

[Carolab]

04:05 AM on 03/09/2010

I don't know how you view LaRouche, but this is a good backgrounder:

http://www.larouchepub.com/other/2007/3414fdr_housing.html

[Carolab]

02:40 AM on 03/09/2010

Fact is people who are underwater are walking away in record numbers but a lot of people continue to struggle to make payments. In non-recourse states, no one can come after them for the deficiency so there are a lot more "strategic defaults" there.

Since, typically, these borrowers have more than one loan on the house the banks don't want a short sale because not only do they lose money but typically there is a struggle settling with the holders of subordinate loans on the house.

This plan just saves the banks from having to spend tens of thousands on foreclosure by encouraging the owners to leave on terms that prevent them having a foreclosure on their record. A short sale still damages your FICA.

In addition, it prevents investors from collecting on contracts that stipulated a full par payout on any permanent loss in value of the underlying asset (i.e, the original contract principal and/or interest terms are modified, changing the cash flow). (See Greenwich Financial vs. Countrywide.) That's why they haven't been modifying loans.

So whoever owns the note gets the asset back without added expense (in fact, they make some money) and can turn it and make money on it all over again, and it cancels out the original contracts.

So, you see, it really benefits the note holders. The homeowners are still out, with dings on their credit, but with a few bucks in their pocket to rent somewhere else.

[Carolab]

01:09 AM on 03/09/2010

Frogfoot thinks we should bailout the underwater borrowers because otherwise we don't have a "heart".

Frogfoot is underwater and wants you to pity him for his poor investment decisions.

[Jacqueline Homan]

02:21 AM on 03/09/2010

Are you telling us that Frogfoot cooked up the idea of derivatives and credit default swaps?

As for blaming the victim, which you seem to be so good at from your lofty position, did it ever occur to you that maybe a lot of the people needing a bailout are the ones who got LIED TO about the terms of their loans? Let me guess, it's their fault for not being "smart enough" or not having a crystal ball to foretell the future, right?

Yes, there are a lot of borrowers who were told by mortgage brokers and bank loan officers that their adjustable rate mortgages would never go above a certain amount, which turned out to be a lie. The terms of the loan in writing was even more ambiguous. Most of those borrowers were home buyers who were DEFRAUDED by the banksters. Deregulation shredded the consumer protections afforded by Regulation Z, otherwise known as the Truth in Lending Act, and shredded the Glass-Steagall Act which was supposed to maintain a "wall" between investment banking and the lending side of banking. Banks were let off their leash like rabid dogs in the wild, wild West. They knew what they were doing. And they're the ones that got bailed out while the poor little guy got told to bend over and assume the position.

[Carolab]

02:45 AM on 03/09/2010

Not at all. I understand fully how the derivatives caused the crisis.

But an awful lot of people in this boat, or rather "under the water", got there by being irresponsible and taking on more debt on top of the original loan.

I had people walk into my model all the time saying they wanted to sell their existing home and buy new but their asking price was way out of line with the market because they had borrowed against their equity. They weren't able to get out of their home and buy into the new, more expensive home, because they were overleveraged.

I had friends who wanted me to put their home on the market and asked $200K over its market value only to tell me later after it wouldn't sell that they had a HELOC on it and that's why they needed to ask more than what the market would really bear. They actually bought into the hype that their home was worth that much more when it appraised for the HELOC.

The bank wouldn't take a short sale because the second loan was so high, either.

Eventually, they filed bankruptcy and the lender foreclosed.

[Carolab]

02:50 AM on 03/09/2010

To answer your posts below:
_____________

I didn't vote for the scu-mbags Reagan and Bush. I'm a lifelong straight-party ticket Democrat.

But just look who we elected this time.

A Democrat who is worse than Reagan.

Fooled, big time.

P.S. Sorry for your life story.

[lodger16x]

02:23 AM on 03/09/2010

Another bailout. Americans came to look at a house as an investment rather than a place to live. The message Americans got from realtors and late-night infomercials was that housing prices would rise forever a and ever .Why should America prop up the phony housing market? Then again, we've bailed out Wall St, so why not go over the cliff?

[Carolab]

02:46 AM on 03/09/2010

Yes, it is, just another bailout.

[loki]

12:33 AM on 03/09/2010

This is pure BS. Our gov bailing on the citizens , again, in favor of the ultra elitist Ivy greed rich.
The banks dont want anymore properties, so instead of helping the homeowners out, they are going to let big developers and property management companies pick up billions in properties for a song.
Its just like the republicans were in charge. LIke Ive said, there is no difference between Demorats or Rethug politicians except in the way they act in public. they all do the bidding of the Ivy greeders.

[Carolab]

12:46 AM on 03/09/2010

Yup. It is pure B.S. And it is also an attempt to keep the property values higher instead of letting them slide into foreclosure, which by the way costs the banks a LOT of money in addition to triggering credit default swap payouts which depend on default.

Plus, the Administration is trying to buy votes as well as campaign money.

[strangelet]

03:29 AM on 03/09/2010

In what way does facilitating a short sale keep property values higher?

Mmm, well, I guess maybe by preventing the property from falling into extended non-maintenance and possible vandalism.

Is this a bad thing?

[lodger16x]

02:27 AM on 03/09/2010

I have come to the sad conclusion that Obama is just an Ivy League neoconservative. He uses his rhetorical skills to support the status quo. I am ashamed that I let him fool me, but after 8 years of W, I guess I was vulnerable.

[AngelsWing]

11:52 PM on 03/08/2010

Force the banks to change loans to 0%. Then homeowners can afford to stay in their homes and pay the paymetns, and the banks lose prfits, not principle. But Obama will never help the middle class with our own money.

[Carolab]

12:10 AM on 03/09/2010

Halt all foreclosures. THEN lend for 0% from the Homeowners Loan Corporation LIKE FDR DID.

[Lorianne]

06:43 PM on 03/09/2010

That program was only for people who had at least 20% equity in their homes.

[AngelsWing]

11:51 PM on 03/08/2010

The banks will make out like bandits, like they always do with Obama and crew.

[lodger16x]

02:30 AM on 03/09/2010

Obama is one of the greatest frauds in American history, and I am not a teabagger, I am attacking Obama as a disappointed progressive.

[Carolab]

03:02 AM on 03/09/2010

I think we progressives are the most disappointed voters of them all. After all the work we did to get him elected, and Rahm calls us "re-tards" and blocks the door.

NICE.

[ejhickey]

11:09 PM on 03/08/2010

From the NYT article: "The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure...... 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.”

Something is not adding up. Why would $1000-$1500 tempt any of the parties in the example to do anything? The incentives are going to have be much larger to get the bank to write down the mortgage. As for the homeowner, a $1500 relocation allowance is so ridiculously small in this situation , it is laughable.

[Carolab]

12:13 AM on 03/09/2010

Is Mr. Paul's client UNEMPLOYED or otherwise in TROUBLE?

Then WHY should we help him AND his agent?

Foreclosure is ONLY sensible if the homeowner CAN'T make his payments not because he doesn't WANT to because he thinks the house isn't "worth it".

IS THAT his problem? Or is he just pis-sed off because he can't get what he think he should for his SHACK?

[Carolab]

12:14 AM on 03/09/2010

*he and his agent think he should*

[loki]

12:36 AM on 03/09/2010

if he was a multi billion dollar developer though, he could walk, make a huge profit, and borrow off the same bank at the lowest rates they have. But I fear he is just a lonely citizen.

[Carolab]

12:28 AM on 03/09/2010

By the way, did Mr. Paul's client BORROW against his house?

Did he get a ZERO DOWN loan?

WHY is it worth so much less than the $150K he owes on it?

[strangelet]

03:36 AM on 03/09/2010

Um,perhaps because, as you well know, AZ prices have dropped by over 50% since the peak.

I will admit that an offer of $48K on a house that must have at one point appraised at least $150K is kind of extreme. As I think about it, $48K???? For an actual house. And the bank would settle for $90K?

Okay, stream of unconsciousness here, that is pretty weird.

[Carolab]

10:56 PM on 03/08/2010

Here's the deal, underwater borrowers:

You made an investment and its value has gone down.

That does NOT mean you are entitled to me picking up your shortfall.

Same as if you had bet on the stock market and lost.

I do NOT have to cover your loss.

Now, if you were UNEMPLOYED and could not meet your obligations, it's another story. I would say that you should be getting a MODIFICATION or be able to go to bankruptcy and write down/discharge your debt.

This just allows you to get out of a BAD DECISION on MY DIME. And, furthermore, it erodes your neighbor's value and for all you know they are NOT underwater at all but do NOT owe more than their home is worth because they bought it a long time ago or put a lot down and paid a lot into it. And for that they get to sell at a price that makes sense and still get out of their obligations cleanly without my "assistance".

[Frogfoot]

11:00 PM on 03/08/2010

God forbid YOUR DIME be used to help a fellow American. You are heartless and hopeless. There is much merit in the President's plan, that's why he was elected.

[Carolab]

12:05 AM on 03/09/2010

Oh, I see.

YOU ARE UNDERWATER, AREN'T YOU?

[LeftRight]

11:05 PM on 03/08/2010

You've got GREAT compassion don't you? ESPECIALLY considering the fact that the REASON most of those mortgages are so far underwater are NOT our fault!

[Carolab]

12:06 AM on 03/09/2010

YOU ARE STOOPID LIKE YOUR BUDDY UP ABOVE. YOU DON'T GET IT.

[Carolab]

12:15 AM on 03/09/2010

You are UNDERWATER too, aren't you?

I am not underwater.

Now WHY is THAT????

[Gymyd]

10:41 PM on 03/08/2010

It really doesn't matter because the Chinese are going to foreclose on the whole darn country anyway and we'll have the spendfrieks in washigton to thank for that..

[Carolab]

10:47 PM on 03/08/2010

The Chinese cannot do that because they are too tied to our economy and their currency is pegged to ours.

[Gymyd]

11:05 PM on 03/08/2010

For now, but hir plan is to tie our debt to the euro and then we are sunk.

[Carolab]

10:36 PM on 03/08/2010

I am NOT underwater and it's NOT because I am lucky.

It's because I did NOT pay more than I could AFFORD, put down a SIZEABLE DOWNPAYMENT from the sale of my last home, which I also COULD AFFORD AND PUT DOWN A GOOD DOWNPAYMENT ON,. did not OVERPAY for my home, and did NOT borrow against its equity. In fact, I lost money on the sale of my last home before I bought this one and I had to borrow $50K to fix this one up. I am only here because I had to take in my elderly mother and needed an extra bedroom for her. THIS is what I could AFFORD.

I am SELF-EMPLOYED AS A REALTOR AND SO IS MY HUSBAND AND RIGHT NOW WE ARE LIVING ON my mother's PENSION and OUR SAVINGS.

NOW, if I HAD owed more than my home was worth, and I was UNDERWATER, should you bail me out?

NO. I made my OWN decisions and it's NOT your problem. YOU were not a party to my contracts for my debt. THE BANK WAS.

THE BANK AND I MADE A DEAL. IF I WERE UNDERWATER, WHICH I AM NOT, I WOULD SAY THAT IT'S BETWEEN ME AND THE BANK. IT'S OUR PROBLEM NOT YOURS.

JUST AS IF I HAD BOUGHT MORE CAR THAN I COULD AFFORD AND IT DEPRECIATED LIKE MAD FROM WHEN I BOUGHT IT.

[Frogfoot]

10:44 PM on 03/08/2010

The caps lock key is on the left side of your keyboard.

And aren't you special, living off your mama.

[Carolab]

10:48 PM on 03/08/2010

I am NOT living off my mama.

I am caring for her INSTEAD OF PUTTING HER IN A MEDICAID NURSING HOME, which is what she can afford.

And my MEGA-RICH BROTHER isn't contributing ONE THIN DIME WHILE I CARE FOR HER 24-7 AND CAN'T EVEN GET A JOB.

TALK ABOUT LACKING BOTH A HEART AND A BRAIN.

YOU TAKE THE CAKE, BUSTER.

[Carolab]

10:49 PM on 03/08/2010

P.S. MY MOTHER IS 85 AND HAS ALZHEIMER'S.

EVER TAKE CARE OF SOMEONE WITH ALZHEIMER'S????

[devildog09]

10:44 PM on 03/08/2010

Isn't it amazing how the government can direct Fannie Mae to back and encourage subprime mortgages to entice nonqualified buyers into purchasing a home they cannot afford, then after they cause the collapse of the real estate market the gov't now wants to pay the same people to sell their house back for less than they paid? Only our gov't could be so foolish. Funny thing is, when credit card companies give "too much" or "too easy" credit to consumers, they are called greedy and unscrupulous., and the same federal gov't threatens to regulate them.

[Carolab]

12:08 AM on 03/09/2010

It wasn't FANNIE AND FREDDIE.

IT WAS THE PRIVATE LENDERS. THE BIG BANKS CREATED THIS MESS.

AND GOVERNMENT DEREGULATION MADE IT POSSIBLE.

[realitytrumpsbull]

10:31 PM on 03/08/2010

Not being a signatory to a mortgage, from my chair, there is no 'mortgage crisis'. What I DO see, though, is the aftermath of too many people trying to make money off the sale of real property. Housing speculation created the hairball bouncing across the floor today, people have made fortunes in real estate(Trump, for example), but that doesn't mean everybody's going to get to do that. Also, not everyone should try to buy a house. If your income level doesn't look like you'd be able to pay the place off in about oh, 10 years, what are you doing to yourself, there? Renting puts a roof overhead the same as paying on a mortgage does, difference is, you'll never own the place. Oh, well, there's a lot of people that THOUGHT they were on the home ownership track, and where are they now? Putting keys in an envelope to mail back to the bank.

Housing market? Who cares? Let the bankers etc. play real-time Monopoly with people's lives. Just don't YOU get suckered into playing along with em. If you can't afford it, you can't afford it, plain and simple. Be smart, or be sorry later...

[Gymyd]

10:19 PM on 03/08/2010

Here's the deal. The census bureau is hiring over a million people nation wide and pays 20 buck an hour and runs through the end of july. Now go apply please.

[Carolab]

10:29 PM on 03/08/2010

Here's the deal. You have to apply, be accepted, then test out.

No go apply please.

[Gymyd]

11:28 PM on 03/08/2010

And your issue with that is what?

[lodger16x]

02:53 AM on 03/09/2010

The Census is paying much less than 20$ an hour in many places. The census is not intended to be a cure for unemployment. It offers temporary jobs that require a lot of wear and tear on your vehicle, and possibly interviewing dangerous people. Hiring one million people will barely make a dent in unemployment. I take it you are one of the frustrated capitalists, seeing the system fail and resorting to "corporate welfare", who believe if a person looks for a job, one will magically appear. Compare the government spending on Wall St. compared to the middle/working class!

[Carolab]

03:17 AM on 03/09/2010

Exactly. It's very labor intensive and as you say puts a lot of wear and tear on your vehicle and it can indeed be dangerous.

Not a solution to unemployment at all. Just a quick fix for a few bucks to tide some people over. And so many people will apply it will be hard to get accepted for it.

So sad that it's come to this.