Banks Paying Homeowners Up To $35,000 To Sell Houses, Avoid Foreclosure: Report

Some struggling homeowners are getting paid by banks to sell their houses and stave off foreclosure.

Many banks, including JPMorgan Chase, are offering delinquent borrowers as much as $35,000 to sell their houses for less than they owe on them, Bloomberg reports. Some banks are finding the transactions to be more cost-effective and efficient than the complex and multi-stage foreclosure process.

The attempt to clear the deluge of delinquent properties awaiting foreclosure echos others, including so-called "cash for keys" programs in which banks pay homeowners and renters to vacate their homes without an eviction.

Banks have had to get creative in dealing with a massive foreclosure pileup that confronts them. Overall, foreclosure filings fell dramatically last year in large part because banks were hesitant to rush the process, after investigations into robo-signing practices, which sped up foreclosures, indicated abuse. The foreclosure process now takes nearly triple the amount of time that it did in 2007, according to LPS Applied Analytics.

The extended time period for foreclosures means that millions of properties are sitting in the pipeline and weighing on home values. Homes that are in foreclosure drive down property values twice as much as vacant properties, according to an October study by the Cleveland Federal Reserve.

The Justice Department lent support to another means of avoiding foreclosure last month. The agency argued that foreclosure mediation -- or the process whereby struggling homeowners can negotiate with lenders so they don't lose their homes -- is worthy of a government boost in research and possibly funding.

Ben Bernanke also lent his two cents on how best to fix the housing market last month, when he published a paper saying that relying heavily on foreclosures to deal with delinquent borrowers is "costly" and "inefficient" for the housing market.

Foreclosures "can result in 'deadweight losses,' or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods," the paper said.

Bernanke also floated some alternatives including combing a deed-in-lieu -- or a program where homeowners return their house to lenders without going into foreclosure -- with a rent-back agreement.

The Home Affordable Modification Program, an aim touted by the Obama Administration in February 2009 as having the ability to help 3 to 4 million homeowners modify their loans and avoid foreclosure, has only netted nearly 1.8 million trial modifications for homeowners so far, according to a recent government report.

Comments

[blueken60]

03:55 PM on 02/09/2012

This all sounds like hard work for the banks. If banks wanted to make money the old fashioned (earning it working hard) the sub prime mortgage bubble never would have happened because the banks wouldn't have lent the money.

[demilieu]

02:32 PM on 02/09/2012

Nope, the banks are NOT handing out cash.

[John Derrick]

01:34 PM on 02/09/2012

Here's an idea; fix the mortgage interest rate to two key numbers each of us posess: 1) Credit Score and 2) Gross Income... For the poor who cannot establish either; there is government subsidized housing that must still be paid by the tenant under strict conditions: 1) the rent fees must balance all rental costs (if the property isn't maintained and requires renovating; the rent fees go up or eviction), and 2) the tenant must submit to, and pass, drug & alcohol testing.

Our government is perplexed over how to place the poor into homes; instead government's true job is suppose to be "how to incentivize the poor"... into becoming productive citizens who are responsible participants of society and who pay taxes; like the rest of us (of course if taxes continue to rise, the incentive for the rest of us to work & pay taxes tends to wain). Government must stop paying for bad social behavior and start encouraging good behavior....but we obviously have the wrong leadership to accomplish this.

[demilieu]

02:34 PM on 02/09/2012

There are not enough government subsidized housing units available to even remotely meet the demand. And who really wants a HUD-owned house and subsidized family living in their neighborhood?

[mackld]

07:17 AM on 02/09/2012

Why buy back houses instead of reducing the principals? They really want all of those houses vacant? Was that the original motive? It just seems vindictive or at the least in your face.

[CaIifGal]

06:03 PM on 02/08/2012

Realtors are liars...... True. Is this something new?

[demilieu]

02:35 PM on 02/09/2012

AKA Sales professionals.

[Collapsing House Price]

04:15 PM on 02/09/2012

Realtors are no more "professional" than a used car salesman.

[Ball Sakcajawea]

05:11 PM on 02/08/2012

Let's be clear the banks did not cause the collapse, the banks we're as ignorant as the rest of you idiots who probably re-financed your homes circa 2004. There was no personal responsibility on behalf of the borrowers or anyone during this period. Once the teaser period on those ARMs ended there was no way they could keep of with the payments. Most of these people were never financially sound in the first place, this is why most of the toxic debt originated from sub-prime borrowers. The hilarious part of this story is that the reputation of the realtors and ratings agencies escaped this debacle relatively unscathed. The realtors/speculators/flippers betrayed their own communities to make a quick buck on unsuspecting people. It's funny that people are making the banks out to be some kind of new evil. No kidding, when have the banks ever given any working person a fair interest rate on the money you allow them to use to make billions of dollars on?

[angusmciver]

11:23 AM on 02/09/2012

Hey Ball, I like the way you laid that out. Although most of these banks suck, personal responsibility has to come in to play somewhere. The feeding frenzy on bigger better homes was out of control and your point about the realtors/speculators I think is right on. I feel like they steered the values higher and higher as the bubble became ready to pop, and walked away proud.

[fineartgalaxy]

03:50 PM on 02/08/2012

There can be no prosperity, no wealth and no real intentions of a better future as long as we have foreclosures by the thousands. It just cannot be. Same as talking about peace all the time but preparing for war. If you want prosperity you cannot have foreclosures. You have to have jobs. If you want peace you cannot have war. Simple as that.

[Collapsing House Price]

04:59 PM on 02/08/2012

Forclosures and delinquencies have been with us since the dawn of lending and always will be.

Prepare for even more foreclosures and defaults in the coming decade.

[demilieu]

02:39 PM on 02/09/2012

Prosperity will happen when we become prosperous again.

[Mister Grumpy]

03:41 PM on 02/08/2012

Let the bank foreclose and then let them pick up what remains of the homes ashes.

[QuantProgrammer]

10:21 AM on 02/09/2012

This is a good idea. Once the houses and homeowners have disappeared, we can reconvert them to farmland.

[fineartgalaxy]

03:12 PM on 02/08/2012

The banks caused the collapse in all fronts. Their cooperation and help with the victims is necessary for anything else to start healing and growing again. They need to pay a price and the price is to help Americans. The very least they can do.

[Collapsing House Price]

05:00 PM on 02/08/2012

WRONG.

Tens of millions of people grossly overpaying for what has always been a depreciating asset caused this.

Stop misinforming HP readers.

[JustJefe]

05:53 PM on 02/08/2012

wait... you are saying the banksters were blameless and that the citizens of this country were at fault for buying homes? Finally found out what you do for a living at least. So, what bank do you work for CollapsingHousePrice? btw... havnt heard you offer anything constructive. no ideas or not valid arguments, nothing but insane conspiracy theories. no wonder she left...

[Joe Krumbach]

02:10 PM on 02/09/2012

It wasn't just the banks, it was the borrowers and the realtors. No one talks about the realtors that set the prices on homes, they are as responsible.

The National Association of Realtors is one of the only organizations in this country that REQUIRES that every Realtor be a member, and pays them and their PAC dues, and no, it is not a Union.

[John Derrick]

01:18 PM on 02/09/2012

Rather than the banks "pay a price and the price is to help Americans" you suggested fineartgalaxy, how about considering the source of the problem....government interfering in a Free Market Society? Washington wanted the poor to "realize a part of the American dream and own a home..." without considering HOW they were going to pay for them. Fannie Mae and Freddie Mac originated many of these loans (other lending institutions were pressured to cooperate incentivised by lower government interest rate loans) and sold them off as "good" to other lending institutes. To compound the problem, when the supply-side economics (supply & demand) drove housing prices higher until...all the defaults began the domino-effect and resultant crash; effecting all of us!

To permanently fix this problem; Washington's hands must be forever tied from interfering in an otherwise "free" market. Every time government endeavours into any business; it goes massively wrong due to inconsistent leadership and discipline by Congress. Proof of point; name just one government-owned business that is self-sustaining?

[Charles W Noble]

02:51 PM on 02/08/2012

This is a good idea. It allows the person going in foreclosure to go rent a space. It is hard to rent when you have foreclosure on your record unless you pay a few months in advance. So this makes alot of sense and allows them to move forward while the banks saves money. Win-win captalist solution. Lets get this inventory behind us so this real estate market doesn't continue to bring the economy down.

[fineartgalaxy]

03:16 PM on 02/08/2012

The RE market is not bringing this market down. The RE market was already buried by the banks. The banks caused all the unemployment that caused all the mortgage payments to stop. Let's be clear. This is not a regular economic cycle. This is robbery.

[Collapsing House Price]

03:27 PM on 02/08/2012

Finartgalaxy,

Why do you banksters and realtors want to keep people enslaved to 30 years of mortgage debt on a depreciating house from which they'll never recover?

[QuantProgrammer]

10:23 AM on 02/09/2012

Because they borrowed $250K to bet on red, it came up black, they don't get to undo that.

Next time (if there is a next time), you'll learn to be more conservative.

[Beernuts]

02:04 PM on 02/08/2012

We are a nation of complete and utter selfishness and ignorance. The same entities that rigged the system, blew up the economy, destroyed the basic structure of legitimate financial leverage, now offer to pay to rid themselves of the dilemma of foreclosure? What? And you want to help them out, is that it? Why? So they can play another shell game and borrow more money at zero per cent and lend it back to you at 5? You must be the same crowd who fell all over yourselves accepting Shrubbery's tax cuts so you would look the other way while he played "little big man" and went to war. For crimeney sake, find a moral compass or at least a little piece of iron and tell the banks to stuff it.
Walk away or continue to pay if you can, but this is a gift horse and you are not looking in the correct oriface.

[Collapsing House Price]

01:49 PM on 02/08/2012

"Realtor steals from local church, embezzlement"

http://blog.al.com/live/2011/11/mobile_real_estate_agent_charg.html

[JustJefe]

03:42 PM on 02/08/2012

and how about those filthy liars that work at the Red Cross. (watch i can do that too with any organization)

A Connecticut woman working for The American Red Cross faces allegations of Embelzzlement... -what do you do for a living collapsing? I want to baselessly smear your profession.

http://www.norwichbulletin.com/news/x1882846142/Connecticut-woman-pleads-not-guilty-to-Red-Cross-embezzlement#axzz1lpBg3hUi

[Collapsing House Price]

04:55 PM on 02/08/2012

The difference is you rip people off legally.

[giwel7]

01:28 PM on 02/08/2012

this is an interesting spin. another report states that the banks are being "creative" because they have these properties listed on their books as "assests" which is fraud. and they have no legal documents to show any legal standing. "up to" $35,000 appears to be another net to lure the homeowner into signing reams of paperwork and in many cases has language they give up the right to any legal action against the bank.

[Jen Celli]

01:33 PM on 02/08/2012

Another carrot they're running before this horse. They're raising assets and getting out from under non-performing debt. Plus they get paid off at 100%. It's good for their image and their asset base. Their other toxic debts are piling up in huge amounts and they can't sustain that debt ratio much longer without going insolvent.

[John Derrick]

01:45 PM on 02/09/2012

Whoa..giwe17...you're thinking like a banker now and scaring all of us! Indemnification may be in the small print...but no doubt it will be a part of this "incentive."

[jr3houpe1849]

01:05 PM on 02/08/2012

The realtors would have us believe that property values are only down 10-15 % the real numbers are closer to 40-50%

[Collapsing House Price]

01:07 PM on 02/08/2012

And falling.

Realtors are so corrupt it's stunning.

[JustJefe]

01:39 PM on 02/08/2012

Example please??? Im a realtor and shock! you dont know what youre talking about. Realtors dont set prices. (unless they are selling their own home of course and at that... you still need someone to agree to buy it) Sellers set prices and appraiser evaluate if the price is proper or not. sounds like your beef is with appraisers inflating values so that lenders and sell over priced homes.

[Collapsing House Price]

01:41 PM on 02/08/2012

WRONG again.

You're Iying but that's what we've come to expect from realtors.

[Charles W Noble]

02:54 PM on 02/08/2012

Dude, the enemy is not the Realtor. They just go sell for what the market will bear. If a Realtor sold you a $100,000 property for $200,000 they can't get it done in this market. It would have to pass a lender appraisal to qualify and the appraisers are now chosen without the knowledge of the Realtor. BTW, the marekt isn't down 40-50% everywhere. Real estate is mostly local not national. You can find area's where the properties have been devalued by 80% and area's where the property values have actually gone UP.

[JustJefe]

03:14 PM on 02/08/2012

Thanks Charles... I was getting a little tired of being called a liar for trying to make any sense of this article. the fact is the article is lacking any detail. 2500 is more likely and the scpetics are right. banks arnt paying people 2500 to leave, out of the kindness of their heart. It saves them money. everyone appears to have gotten a little upset that I indicated that a short sale with a little cash in hand is better than a foreclosure. (which is 100% true but apparently hard for some to accept)

[Collapsing House Price]

03:16 PM on 02/08/2012

FALSE.

Prices are falling irrespective of location.

[Jen Celli]

12:43 PM on 02/08/2012

So what's the advantage to the bank in this event? There has to be something that they aren't telling the people to make this kind of offer. No bank will ever make any transaction that doesn't benefit the bottom line. If it seems to be too good an offer to be real, there's something not right about it.

[ScaredAcademic]

12:50 PM on 02/08/2012

Umm, foreclosure is not free. Upkeep costs on the property, rental services, real estate agents, and numerous other relatively small bills combine to make it worth it to banks to have homeowners find a maximum selling price for moving the property.

[Jen Celli]

01:05 PM on 02/08/2012

I think there's more to it than that. I imagine if they are willing to work out that kind of deal now, they would have done so. What I think now is, the shadow inventory has ground them down to insolvent asset levels. If they can receive 100% of the outstanding fees and balances and preserve what little stability they can in the market and still make a profit, they're making the deal. It's my belief they have to clear these assets quickly because they will have their hands out very soon and they all the goodwill they can get. Because, you see Academic, these loans are likely guaranteed one way or another against loss, but their other toxic assets are not so well indemnified.

[jr3houpe1849]

01:18 PM on 02/08/2012

My son just bought a foreclosed property it sat empty for 3 years it took the lender until two weeks ago to get the paper work to prove they owned the property before it could be sold.......................MERS look it up

[Collapsing House Price]

12:57 PM on 02/08/2012

Who cares how the bankster benefit.

Being free of 30 years worth of inflated payments and $35k in your pocket is freedom.

[jr3houpe1849]

01:08 PM on 02/08/2012

$35k doesn't go in your pocket it goes to pay the balance between what is owed on the property and what it will sell for

[fineartgalaxy]

03:29 PM on 02/08/2012

Correct, but, the banks are not yet putting in wiriting the defficiency judgement forgiveness. They are selling the defficiency judgement debt to collectors that will hunt you down 3 years down the line. You really get nothing from the banks.