Feds to force banks to accept short sales

A new program from the Obama administration hopes to take a plunger to the short-sale process by essentially forcing banks to accept less than the borrowed amount for a property. It will also pay those delinquent homeowners $1500 to help with relocation.

The idea is that a short sale is better for everyone — banks, underwater owners, and communities. Banks will take a hit, but less of one than if the home went into foreclosure. Homeowners will take a credit hit, but, again, less than with a foreclosure. And communities would avoid having empty, foreclosed homes sitting around.

This is economics on a grand scale, so — despite what various talking heads say — it’s really impossible to know if and how well this will work. But the Administration hopes it will be another foot helping to kick-start the economy.

Read the full story at MSNBC.

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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5 Responses to Feds to force banks to accept short sales

  1. One point not discussed in the article is the tax ramifications for the defaulted borrower. Although I haven’t researched all the details of the program, I assume it applies only to primary residences. Of course the greatest hurdle our clients have experienced is the “no” from the investor, which is naturally Fannie Mae. Interesting case of the snake chasing its tail.

  2. Ray says:

    I think this is a really good way to keep the money flowing. However, will $1500 be enough in a high home price regions such as DC?

  3. What? Soooo much missing here. This program is going no where fast. First they are not forcing them to do anything. If the bank does this, they get a bonus from the feds for $1k. And for that 1k they have to give up any right to go after deficiency. Really, that sound like something bank will want to do?

    Second look at it from the buyers end? Why are they selling short? Often because they cannot afford payments, yet they need to remain current within income guidelines during the time. And the bank sets the price which is set for 4 months. So if the bpo comes in high, the house sits on the market for 4 months to high and the seller has to make the payments they could not afford.

    And if the seller enters the program and lets say the above scenario happens and they cant keep up with payments then they have to leave the program and they are no longer eligible for a traditional short sale. Not good for seller.

    This program has so many pitfalls I would bet it will be as successful as the HAMP program

  4. Ray says:

    Dean – I agree with you on the pitfalls but my guess is that this will actually be much more successful than what we currently have. From the bank’s perspective, they have had a very tough few years (their fault) and now they’re trying to emerge from the negative light. Just about all the big banks are publicly traded companies, and they would rather unload the debt and take a loss now rather than keep a negative asset that investors will punish them for later. Coupled that with the fact that banks are spending waaaaayyyyyy too much money trying to evict current residents who can’t pay, this new method gives both sides motivation to short-sell.

    By unloading assets, the banks will be more likely to lend new loans that brings our economy on track; something banks aren’t doing at the moment.

  5. I’m seeing some flaws right in the headline of this article. The legislation attempts to streamline the short sale process, but it does not force banks to accept short sales in any capacity. They can still deny requests. I agree with Dean the benefit of the program is iffy at best but really; there is no “forcing” here. The legislation only applies IF the bank accepts a short sale offer on a property.

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