Getting desperate out there:
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
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.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
Short sale, though, doesn’t work all that easily. I know people who have been in short sale for months and still nothing. The real problem kicks in when you have a second on your house. Given home values, if there is a foreclosure, the second note holder will get nothing – but there’s also no requirement in a short sale to give the second anything…but, of course, the second can spike the deal unless something is forthcoming. From what I understand, its usually about $3,000.00 to $5,000.00 sent to the second note holder.
What this latest Obama plan amounts to is a means of keeping people in their homes without having to pay their mortgage (if the house is in short sale, there is absolutely zero reason to keep making payments) and for those who do actually manage to get a sale, there’s $1,500.00 to help move (though if you had a mortgage payment of $1,500.00 per month and you’ve been in short sale for 9 months you should have $13,500.00 saved up – if you’re responsible). This is a “tide the housing market over until November 3rd plan”.
As long time readers know, I was yammering on and on about how the best means of curing the situation was to “cram down” the mortgages to the collapsed current value. Now, I’m not so sure – it would have taken some government money and all that has been blown in TARP and Spendulus. And if we do “cram down”, a lot of banks will fail because they are only “solvent” as long as the loans on the books are considered valid. Of course, if nothing is done these loans will still go bad – either in foreclosure because someone lost a job, or in the act known as “strategic default” – the banks will still fail, just not right now.
Its a mess, my fellow Americans. Welcome to national bankruptcy. The sooner we admit it, balance our budget and let the chips fall where they may, the quicker we’ll stark working our way out of it (and don’t let anyone crow over our financial corpse – the rest of the world is just as economically dead as we are…yes, even China).
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