I was taken aback this morning when I read in the New York Times that there is a new federal program that will look to put many thousands of mortgages-gone-bad back to the banks through a short-sale process. It’s not actually new, the Treasury assures me, but rather was put forward as part of the Home Affordable Modification Program announced back in November. That’s a relief because I was beginning to think that new housing programs were firing off as if from a multiple rocket launcher.
Short sales, where a bank agrees to a house sale for less than the outstanding mortgage balance, have been a small part of the housing fix to date because banks and mortgage bond holders are generally reluctant to record a loss on loans, even delinquent loans. Also short sales involve a bundle of paperwork, and there hasn’t been a good means of deciding what a proper selling price is for a house where the market is soft and the homeowner is tapped out.
Under the HAMP program, servicers get $1000, the same amount they receive for a home loan modification. Also, the selling homeowner would get $1,500 to help them relocate. That’s a nice bit of change but hardly a lifesaver for someone about to lose their home. Finally, realtors will assess the home’s true market value, and they also qualify for a commission on the sale. That’s an important point because it puts a strongly motivated agent into the process, which is a nice counterweight to a reluctant bank.
Debt forgiveness is the only way out of this housing mess, so there much reason to hope this program succeeds. But I must admit to a nagging concern that this is one program that could use more Government skin in the game.