Starting April 5, 2010, homeowners facing foreclosure will have an additional program to access that is designed to prevent foreclosure. Then newest foreclosure prevention program designed by the Obama administration, homeowners facing foreclosure will be encouraged to sell their home their home for less than what they owe on the mortgage (short sale).
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." And as part of the transaction, they will get the lender's assurance that they will not later be sued for an unpaid mortgage balance.
Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.
While short sales can be beneficial to some homeowners facing foreclosure, it is not clear if this program is enough to combat the foreclosure crisis because of two major problems:
- They housing market is already saturated with foreclosed homes and the homes of owners who are not facing foreclosure but who want to sell their home. In short there are not enough buyers to purchase the foreclosures already on the market let alone the slew of short sales that could come down the pipe once this new foreclosure prevention program is implemented.
- The government has already thrown tons of money at mortgage lenders to no avail. Mortgage lenders have already made it clear that they are not willing to modify mortgages on a mass scale, why would they agree to selling homes at a major discount?
Combating this foreclosure crisis will take more than throwing money at mortgage lenders. We need to give homeowners the leverage they need to force mortgage lenders to the negotiating table. Right now the best way to do that is through bankruptcy.