While some indicators seem to say that the economy is turning around or at least not getting worse, there are still millions of homes out there that are at risk of foreclosure. And since so many of those outstanding mortgages were based on grossly inflated home prices, the odds of finding a buyer that will pay off the mortgage are slim. However, a new program about to take effect in April will encourage lenders to accept less than they’re owed.
Currently, if a homeowner attempts to short sell their house for less than they balance of their mortgage, the mortgage lender has to approve the sale. However, under the new system, the lender will have to consult local real estate agents to determine a minimum fair market value of the home. While the owner won’t be told what the number is, the lender must accept any offer made that is equal to or higher than the determined amount.
“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.
The goal of the program is threefold: 1) To get the homeowner out from under the threat of foreclosure and its crippling effect on their credit rating. 2) To allow lenders to recover as much of their loss as possible, without having to endure the long process of foreclosure, which would likely bring in less money than a short sale. 3) Reducing the total numbers of foreclosures in areas hit particularly hard by the meltdown; foreclosures drive down the value of existing property, making it even more difficult for others to sell or refinance.
“This is not an opportunity for the customer to just walk away,” J. K. Huey, a VP at Wells Fargo, explains. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”