The Department of the Treasury is just days away from announcing their new plans for short sales. Obama's Housing Rescue Plan has focused primarily on loan modifications and with less than 12% of eligible borrowers recieving loan mods thus far, the current plan has been a dismal failure. These disappointing results have forced Washington into looking at short sales as a better way to curb the still declining nationwide real estate values.
After much investigation, here's an inside sneak peak of what to expect from the Treasury's plan for short sales:
1. Standardized paperwork
My Take: This probably won't make much of a difference. Paperwork is paperwork.
2. $1000 cash incentive to lenders for completing a short sale
My Take: Short sales on Fannie Mae, Freddie Mac, and FHA loans already provide participating lenders incentives range with $1000 – $1500. Adding this incentive to all other loans may offer a smidgen of help to the cause.
3. $1500 to sellers to cover closing costs or for moving expenses
My Take: Short sales on FHA loans already provide a $750 – $1000 incentive. However, if this was extended to all loans, signing up new deals would be even easier than they already are.
4. Up to $1000 towards paying the junior lien holders to release their lien.
My Take: Most senior lien holders already allow for junior liens to get between $1000 and $3000. This $1000 incentive will probably make no difference whatsoever.
5. Allowing a minimum of 90 days up to 1 year to market and sell the property
My Take: Short sales on FHA loans already allow up to 180 days to market and sell. It would be a tremendous gift if this was extended to all short sales, not just FHA.
6. No foreclosure may occur during the marketing period specified in the short sale agreement.
My Take: Wow, would this be a tremendous step in the right direction for us short sale investors.
7. Mortgage servicers may not charge fees to borrowers for participating in Foreclosure Alternatives.
My Take: Since we are doing a short sale, a few extra fees doesn't affect the end result.
8. Mortgage servicers may not lower real estate agent commissions after an offer has been received.
My Take: For those who are licensed (including myself), this is a dream come true.
The Treasury plans to use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.
My overall opinion is that the changes the Treasury is looking to implement may appear helpful, but fundamentally, maybe more hype than help. Sure, a few items like postponing the foreclosure date and restricting the lender from gouging an agent's commission is a nice touch, but these may only apply to government backed loans like FHA, Fannie Mae and Freddie Mac. Further, I have rarely seen in American economic history where direct government intervention improved our free market, capitalist system. (And if you point to the instance where 19th century US railroads recieved land grants and federal loans from the government, might I add that the workmanship was shoddy and the costs always exceeded estimates. And meanwhile, James J. Hill built the Great Northern Railway without a dime of government subsidies and his operation never went broke, but instead, provided terrific service to his customers. Sorry for this digression but I sometimes like to head off objections.)
However, perception is reality and many experts agree that this legislation may generate a surge in short sales in the coming months.
What are your thoughts on this new legislation?
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