Stop foreclosure process through short sales, according to the U.S. Treasury Department. A Treasury spokesperson announced that the department is now working out an incentive program that will encourage mortgage firms to use short sales to help homeowners avoid foreclosure.
This short sales program was first considered in May, and the department is now finalizing procedures and the amount of incentives to be given.
The federal government had to look for other ways to stop the continued rise in foreclosures because only 12 percent of qualified homeowners have obtained loan modifications, according to the Treasury.
Based on data from Amherst Securities Group, a flood of foreclosures will again swamp the market if foreclosures in process do not receive intervention. Amherst said that about 7 million housing units are in excess of normal housing supply or about 135 percent of one year’s supply of pre-owned homes.
The Treasury is planning to spend up to $10 billion from the $50-billion loan modification funding in helping homeowners in areas where home prices are still falling.
According to consultants at John Burns Real Estate Consulting, the Treasury will give $1,000 to lenders for each short sale they help facilitate to stop foreclosure process. Under the program, lenders must accept the lower sales proceeds as complete payment of the home loans. Lenders will also be given $1,000 for each deed-in-lieu deal accepted. This deal simply transfers the deed from the homeowner back to the lender.
Under the program, homeowners will also receive $1,500 for their closing costs. Owners of second liens will also be given $1,000 for canceling their claims to their liens so that short sales or deeds-in-lieu transactions can proceed.
The Treasury is hoping that the incentives will encourage lenders and servicers to facilitate short sales and entice homeowners to voluntarily surrender their homes in good condition.
Historically, according to realtors, short sales are not enthusiastically approved by lenders because of what they see as very low sales prices for their properties. But if they see that they will cut their losses if they approve short sales and that the incentives will help them pay for short-sales-associated costs, analysts contend that more lenders will consider short sales.
In addition, according to analysts at John Burns, if lenders consider the high costs of foreclosure and property maintenance costs after foreclosure, they may look at short sales as a better way to stop foreclosure process.