The Obama administration, which has been trying to keep defaulting owners in their homes, reportedly will start paying some of them to leave under a new program that would let owners sell for less than they owe and will give them a little cash to boot.
The new program implemented by President Barack Obama reportedly will allow homeowners to make short sales and receive a payment from the government to do so. A short sale occurs when someone sells his or her house for less than the value of the mortgage.
With five million households behind on their mortgages, the Obama administration faces loud cries for more assistance. Its $75 billion mortgage modification plan hasn’t helped many homeowners.
The new program, which takes effect April 5, makes mortgage lenders accept the short sales, which means they won’t be paid back the full amount of their loans, The New York Times reports.
To entice all parties to participate, servicing banks will receive $1,000 for the first mortgage and another $1,000 for the second if there is one. That’s the same payment as in the mortgage modification plan.
The new angle is $1,500 in “relocation assistance” for the homeowner.
“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.
But lenders emphasize that participating homeowners won’t have it easy.
“This is not an opportunity for the customer to just walk away,” J. K. Huey of Wells Fargo told The Times.
““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.”
Real estate mogul Mort Zuckerman recently called for a program like this. “Sooner or later, the government may be forced to subsidize the mortgages of underwater homeowners,” he wrote in the Financial Times.
Obama’s latest move comes as Republicans have taken aim at the president’s mortgage assistance program. Republicans argue the effort is making the economic crisis worse and say many homeowners would be better off as renters.
The president has been trying to convince investors and the general public that the country is slowly emerging from the recession, but the threat of foreclosures and a faltering housing recovery has been looming over the economy.
The faltering housing recovery and threat of foreclosures are major problems for the federal government, which seized control of Freddie Mac and Fannie Mae in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.