The Obama administration had been trying to keep defaulting owners in their homes. This was supposedly to end the foreclosure “crisis”. Now they plan to pay some of them to leave.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
What was referred to above was the HAMP program which again, was a glaring failure.
The program was intended to help 3 million to 4 million homeowners. By January, it had provided permanent loan modifications to more than 116,000, according to a Treasury Department report, with another 76,000 modifications pending.
Hopefully, this will ease the short sale process, but . . .Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
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. They were not equipped to deal with the labor-intensive process and were suspicious of it.
The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”
Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.
Now, can you imagine that? A former Fannie Mae executive worried about fraud?