Sneak Peak at Treasury’s Plan for Short Sales
The Department of the Treasury is just days away from announcing their new plans for short sales. Obama’s Housing Rescue Plan has focused primarily on loan modifications and with less than 12% of eligible borrowers recieving loan mods thus far, the current plan has been a dismal failure. These disappointing results have forced Washington into looking at short sales as a better way to curb the still declining nationwide real estate values.
After much investigation, here’s an inside sneak peak of what to expect from the Treasury’s plan for short sales:
1. Standardized paperwork
My Take: This probably won’t make much of a difference. Paperwork is paperwork.
2. $1000 cash incentive to lenders for completing a short sale
My Take: Short sales on Fannie Mae, Freddie Mac, and FHA loans already provide participating lenders incentives range with $1000 - $1500. Adding this incentive to all other loans may offer a smidgen of help to the cause.
3. $1500 to sellers to cover closing costs or for moving expenses
My Take: Short sales on FHA loans already provide a $750 - $1000 incentive. However, if this was extended to all loans, signing up new deals would be even easier than they already are.
4. Up to $1000 towards paying the junior lien holders to release their lien.
My Take: Most senior lien holders already allow for junior liens to get between $1000 and $3000. This $1000 incentive will probably make no difference whatsoever.
5. Allowing a minimum of 90 days up to 1 year to market and sell the property
My Take: Short sales on FHA loans already allow up to 180 days to market and sell. It would be a tremendous gift if this was extended to all short sales, not just FHA.
6. No foreclosure may occur during the marketing period specified in the short sale agreement.
My Take: Wow, would this be a tremendous step in the right direction for us short sale investors.
7. Mortgage servicers may not charge fees to borrowers for participating in Foreclosure Alternatives.
My Take: Since we are doing a short sale, a few extra fees doesn’t affect the end result.
8. Mortgage servicers may not lower real estate agent commissions after an offer has been received.
My Take: For those who are licensed (including myself), this is a dream come true.
The Treasury plans to use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.
My overall opinion is that the changes the Treasury is looking to implement may appear helpful, but fundamentally, maybe more hype than help. Sure, a few items like postponing the foreclosure date and restricting the lender from gouging an agent’s commission is a nice touch, but these may only apply to government backed loans like FHA, Fannie Mae and Freddie Mac. Further, I have rarely seen in American economic history where direct government intervention improved our free market, capitalist system. (And if you point to the instance where 19th century US railroads recieved land grants and federal loans from the government, might I add that everyone of those operations ended in bankruptcy, not to mention the workmanship was shoddy and the costs always exceeded estimates. And meanwhile, James J. Hill built the Great Northern Railway without a dime of government subsidies and his operation never went broke, but instead, provided terrific service to his customers for decades. Sorry for this digression but I sometimes like to head off objections.)
However, perception is reality and many experts agree that this legislation may generate a surge in short sales in the coming months.
What are your thoughts on this new legislation?
Why has the loan mod program been a dismal failure? Why can’t the lenders do more to help? I personally have seen one major bank drop a mortgage payment 124.00. Wow? What a difference!
124.00 is not that big a deal for someone that’s paying 5% on one loan and 8% on the second.
Remember, they were told by their mortgage broker they could refinance. This person works two jobs and is trying to keep the home. The bank can’t do any better????? THAT’S THE PROBLEM.
Let’s fix the problem……
I agree with you, This is mostly window dressing. However, this might open the door for sellers to go ahead and try to list their properties that they have been sitting on. I believe that there are millions of people that want to sell and they haven’t because they feel that they are underwater on their mortgage. They wont be able to get out of their home without losing money. With this move by the treasury, we could see a large surge of properties coming on the market trying to get a short sale. This would put further downward pressure on the housing market along with the shadow inventory that the lenders have been holding onto.
I have always told my clients that price stablization is all about inventory. When we see inventory levels get back to historical levels of 3-4 months, then we will see prices stabilize and start to appreciate.
Until then, “Buckle up for Safety”
Since I have yet to do my first short sale I can use all of the help I can get. I’m still learning but hoping to get that first deal done soon.
The example you gave is of a person that could have also refinanced. That’s why the lender did a loan mod. They represent about 1 in 10 borrowers right now, as the article suggested. So why can’t the lenders to more? There is probably a hundred reasons. Regardless of why, it is what it is. Loan mods have been nothing short of a failure for the majority of borrowers who need them.
Or, people can choose to get into the short sale business and buckle up for the greatest financial windfall of their life!
The falling down broke banks that have nowhere to hide or run have to show their cards to their investors. The reality is chilling and the hour of calamity is fast approaching. With the Federal Reserve and the treasury at the helm the banks are going to be the scapegoat. There is only one way out of this mess and that is not modification. Modifications only hinder the inevitable which is the market correction through sale of trust. The banks are not ignorant to the fact the government has to govern it or the banks would look rouge and civil anger will grow to its climax. Short sale in its self is used to forgive inflated value. “FALSE VALUE” The general public as good nature people depended on the government to protect them. It has become relevant that the protection they have provided is yet another cycle of false economy. Between Senate Bill 94 and over 90 banks going out of business in 2009 so far we have not seen the worst of times. Who is leading who and where are they leading you too? I will stop there for now.