The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include "short sales" as a way to stem a rising tide of foreclosures. This is great news for all of us in the real estate field. Many buyers refuse to deal with short sales because of the length of time it takes to close the deal. These deals can take three or more months to close. People do not have the patience to deal with them.
"Short sales," or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, "short sales" eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged. The incentives, first announced in May, would expand the government's Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible. Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9. cited article
The pool of short sales will continue to increase as more and more poeple are falling behind in their payments and equity continues to decrease. We live in some crazy times. It is estimated that only 12% are able to achieve a loan modification. That leaves 88% of the homes going into foreclosure. Foreclosures continue to be strong in many part of America.
Banks will have incentives to agree to a short sale to offset the expense of foreclosing on the property. The Treasury would give banks a $1,000 incentive for agreeing to a short sale and showing proceeds as full payment. This way it reports better on their credit report. Furthermore, banks will receive $1,000 incentive when accepting deed-in-lieu to avoid foreclosing on the property. The deed is immediately transferred to the bank for a small cost. Finally, buyers would be eligible to up to $1,500 in closing costs when purchasing short sales.
This does not seem like enough incentive for banks to hop on the band wagon with these low incentives offered by the Treasury Department. Again, I believe in letting the market correct itself.
Let me know your thoughts on this Short Sale Topic.
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