subject: Fannie Mae Supports Short Sales [print this page] With over 5 million US home owners presently delinquent on their loans and in danger of foreclosure, the American government is keen to deal with the problem. With an already sluggish economy and falling housing market, more foreclosures would have a negative effect whereas what is really required is stability. The government has tried a couple of incentives to stimulate the housing market, but none have been especially successful so far.
One of these incentives was the first time buyer tax credit which was designed to encourage potential buyers to make a purchase by offering tax credits. Sales surged during this period and at first it seemed as though the housing market was on the up again. However, the positive outlook was short lived and when the period was over the market began dropping again. As opposed to truly encouraging potential home owners to make the decision to go ahead whereas they might otherwise have decided against it, it turned out that the tax credit period simply encouraged those who were going to purchase anyway to bring forward their decision from later in the year. This means that although first time home buyer tax credit period would have given a boost to the market, the boost was temporary and made little to no difference overall. Some even feel that it is disadvantageous since it offers false figures and prevents the market from correcting itself naturally.
Another attempt was the Home Affordable Modification Program (HAMP). Designed to help house owners who are struggling to keep their homes by adjusting their monthly re-payments to affordable levels, HAMP hasnt been as successful as it was once hoped to be. Much of the reason for this is that it helps far fewer persons than it had been expected to due to the requirements needed to be eligible for the program. It was also found that even after qualifying for the program, several home owners could still not keep up with their monthly payments. It was hoped that HAMP would assist the market by preventing a large number of foreclosures but it appears as though they need to go back to the drawing board with the program if it should work.
With other programs not living up to their expectations, Fannie Mae is now putting their weight behind short sales. A short sale is when a lender agrees to the sale of a property at a price which does not cover the outstanding loan amount. This means that the lender is accepting a hit financially but it could still be advantageous to them when taking into the account the time and cost involved in a foreclosure. Fannie Mae is now giving cash incentives to servicers if they comply with a short sale. They are also giving cash incentives to home owners if they agree to selling their house at a lesser amount.
This helps the market in general since properties made unoccupied by foreclosures add to the inventory of vacant properties, decreasing the value of the home market. It can even be advantageous to the home owner over going into foreclosure because in addition to the cash incentive, it has less of an impact on their credit rating.
With HAMP and the first time buyer tax credit incentives failing to accomplish what was hoped of them, Fannie Mae is now looking at short sales as a way to prevent too much further decline in the housing market so that it could begin recovery sooner rather than later.
