Obama Administration Takes New Approch To Foreclosure Crisis
The Obama administration has been trying to keep defaulting homeowners in their home; however, they are now taking a new approach to the country’s continued foreclosure crisis by paying them to leave.
Taking effect on April 5, the latest program will allow owners to sell for less then they owe through a process known as a short sale(click here for an explanation on short sales), but the program will also give homeowners a little cash to speed them on their way. This is the administration’s most aggressive attempt to grapple with a problem that has defied solutions.
Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000.00 can go toward a second loan, if there is one and for the first time the government will give $1,500 in “relocation assistance” to the distressed homeowners.
Should the incentives prove successful, the short sales program could have multiple benefits.
1) For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.
2) For the borrowers, there is the likelihood of suffering less damage to credit ratings and as part of the transaction; they will be assured that they will not later be sued for an unpaid mortgage balance.
3) For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by bank. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depress the value of the property further and pulls down the value of neighboring homes.
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales and will still treat short sales as a last resort, but in reality the standards seem to be looser.
This story originally appeared in The New York Times