subject: Federal Government To Start Pushing Short Sales Instead Of Loan Modifications [print this page] The San Francisco Chronicle reported recently that the federal government will change its focus from loan modifications to short sales as a means to help troubled homeowners avoid foreclosure. From the article:
The Treasury Department spent 2009 pushing banks to modify mortgage payments so that distressed homeowners would not be displaced. Next month, the government will start a program encouraging owners and banks to sell some of those same homes.
The program, scheduled to begin April 5, focuses on transactions known as short sales, in which a lender allows a homeowner to sell a house for less than, or short of, what is owed on the mortgage.
If youre not familiar with the term, a short sale is a real estate sales transaction in which the lender agrees to take a payoff less than the full amount owed on the mortgage. For example, if a homeowner owes $300,000 on a home that has dropped in value to $250,000, the lender would agree in a short sale scenario to reduce the amount owed to $250,000 or less so the homeowner can sell the property. Now why, you might ask, would a lender want to do this when it will obviously lose them money? Believe it or not, it is often far cheaper and less risky for a lender to negotiate a short sale than foreclose. Foreclosures are time consuming, expensive, and risky for lenders. And with the glut of foreclosures already on the market, lenders are motivated to explore other options like short sales.
Though I have mixed feelings about the federal government meddling in any market, I see the focus on short sales as being more positive for the housing market than the focus on loan modifications. The primary reason our economy is suffering is because there simply is too much debt out there. Loan modifications do nothing to solve the debt problem, they simply make it more affordable to keep up with debt payments for a temporary period of time. Home values in Southern California and other bubble markets will continue to fall, and many homeowners who got loan modifications are going to find themselves making payments on a mortgage that could be hundreds of thousands of dollars underwater. Even if payments are affordable, why would they be motivated to continue paying on that mortgage? Why would anybody want to pay tens or hundreds of thousands more for a house than it is worth? Loan modifications do nothing to solve the debt problem, they only postpone the inevitable foreclosure.
If you are facing foreclosure, a short sale may be a great option for you to eliminate the stress of a burdensome mortgage, protect your credit, and get you off to a fresh financial start. We work with a network of prescreened short sale professionals that have a proven track record of short sale success. Contact us today for a free, no obligation consultation.
