Short Sale Avengers

The latest Obama plan designed to help homeowners stay in their homes by modifying their mortgages and avoiding foreclosure has made some progress over the past two months. The program is called “Making Home Affordable” and has a price tag of $75 billion.

While some 50,000 homeowners have been offered lower-cost mortgages through the program, lenders have not been able to implement the proposed benefits to homeowners as hoped for. The main reason for this is that the demand for loan modifications has lenders swamped and not fully trained to process the applications. As a result, there is growing concern as to whether the plan will be able to reach its goal of helping 4 million distressed homeowners.

Theoretically the plan makes great sense, but practically speaking it has been very difficult to implement. This is leaving numerous homeowners frustrated. Some homeowners have described the process as, “A comedy of errors.”

Basically speaking, the loan modification program will pay lenders to reduce borrower’s payments by lowering their interest rates and extending the term of the mortgage. Nearly 55,000 homeowners have been offered loan modifications to date and an additional 20,000 have already accepted the new terms of a modified loan.

In some locations around the country, court orders have been obtained to stop the foreclosure process; hoping that the additional time will allow more loan modifications to be processed.

The U.S. Treasury Department is also working on plans that will inject another $10 billion towards an insurance plan that will protect lenders from losses tied to falling home prices. Additionally, the Treasury Department will soon unveil plans to offer lenders incentives to participate in “short sales” of homes; a means of working with owners who choose to sell their homes when they are underwater on the mortgage. Approximately 75 percent of the major lenders have agreed to participate in these proposed governmental programs.

The results of the “Making Home Affordable” program, while a far cry from what is needed, contrasts sharply with the miserably failed “Hope for Homeowners” governmental program that was launched last October, whereby only a single homeowners was helped.

Another program offered last year by the government called “FHASecure”, had only helped 4000 targeted sub-prime borrowers before the program was allowed to expire at the end of 2008.

With millions of home mortgages in some form of distress, the greatest concern seems to be over the homeowners who are underwater; a situation where the borrower owes more on their mortgage than what the home is worth. Currently there is a governmental program targeted to help these borrowers by allowing them to refinance their home if they have little or no equity, providing they have a loan backed by Fannie Mae or Freddie Mac. Thousands have already refinanced under this program, but since the program is limited to borrowers who owe no more than 105 percent of the value of their home and since values have continued to decline, fewer borrowers are able to qualify for this program as time goes on. As of May 2009, it is estimated that 1 million homeowners with Fannie or Freddie backed loans are too far underwater to qualify for the program.

All the governmental programs to date are designed to lower monthly payments, but not loan balances. Home values are expected their continued decline for the balance of 2009, pushing more homeowners underwater and putting more at risk of foreclosure.

If you or someone you know is challenged with their current mortgage payment(s), or is jeopardy of a possible foreclosure, contact me at my office (952) 431-3900 to confidentially discuss options and possible solutions including loan modification and/or short sale. You are not alone.

Jeff Scislow, CDPE, CRS
Certified Distressed Property Expert
www.MinnesotaDistressedProperty.com