The Obama administration has come up with a radically aggressive plan to reduce foreclosure activity which has remained alarmingly high. The key ingredient is to encourage lenders/services to allow more short sales – selling the home for less than the amount of the mortgage without going after the debtor for the shortfall. Mortgage modification plans have not been successful to date.
The New York Times page 1 story today Program Will Pay Homeowners to Sell at a Loss does a masterful job in presenting the program and summarizing the problems of the issue to date, I just wish the title wasn’t so simplistic.
Perhaps I am missing the point, but I feel like this solution has focused on the wrong side of the mortgage default equation. Are servicers going to forgive $200,000 in principal to get $1,000? Are homeowners going to move forward because they get $1,500 (more than the servicer) in relocation fees?
The flood of short sale requests are already overloading many bank’s ability to handle the administration of this crisis – hard to see them able to manage the process any more efficiently.
However, the only way out of this crisis is a solution with principal foregiveness in the equation or people will simply walk away and perhaps the servicer/lender ends up being hurt more. No easy answer I suppose.
Real estate agents will determine property value.