Banks Receive Incentives to Help Distressed Properties
Timothy Geithner has announced further assistance to help distressed homeowner prevent foreclosure. First step is for lenders to offer loan modifications. If the modification is not possible, a quick private sale is encouraged. The last resort will be a modified short sale process. This will save homeowners money and protect their financial future.
All the steps taken will help stabilize the market and lead towards the housing recovery.
The new program being introduced with Making Home Affordable will be a simple short sale process. Borrowers, who are eligible for a Home Affordable Modification, but do not qualify within the modification guidelines or can’t maintain the payments during a trial period.
A short sale is a homeowner’s last resort before foreclosure if a loan modification is not available. Short sales protect homeowners from damaging credit and saving money for the owner and lender. On average a short sale costs 50% less then a foreclosure.
The new program should simplify the short sale process to prevent the high rate of short sales that fall apart in today’s market. On average the banks sit on offers made to purchase the home for 60 – 90 days and property values can decrease or the property remains vacant and can be vandalized. Also if there are first and second lien holders with different lenders, they argue over how much compensation each will receive. Most situations they do not come to an agreement allowing the purchase offer to fall apart.
If a short sale falls apart, the owner gives up the key which is called a deed-in-lieu.
Under the new program mortgage servicers will receive monetary incentives for a completed short sale transaction. Both first and second mortgage lien holders will receive incentives. This creates excitement across the housing industry, increasing motivation to help troubled homeowners.