Economy & Policy

Will Short Sales Help the Housing Market

By John Curran | March 8, 2010 | +

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.

Related Topics: Economy & Policy

  • Latest on Business

    Eduardo Munoz / Reuters
    Apple February 13, 2012

    Apple Stock Hits $500 as China ‘iPad’ Trademark Case Escalates

    First, the good news: Apple shares briefly hit $500 Monday morning for the first time in its history — an impressive milestone and psychological threshold that underscores the incredible success of America’s largest technology company. Now, the bad news: Apple’s headaches in China continue, as authorities in the northern city of Shijiazhuang have reportedly confiscated dozens of iPads due to an escalating copyright dispute.

    From our Partners

    Chipotle Is AppleSlate

    Economy & Policy February 13, 2012

    Are We Already Planting the Seeds of the Next Financial Crisis?

    Central banks are trying to revive weak economies by injecting large amounts of money. That policy helps in the short run, but easy money can also create the conditions for future booms and busts.

  • economicsfordemocrats

    As you mentioned this is a very complicated program to implement. Thus, will it get to enough homeowners??
    But, it is not the only way! The gov’t could just refinance the loan at the same value for a 30 year or 40 year fixed interest of 1 or 2%. This would be only for people staying in their personal residences. If they can not afford this payment they will have to move and rent. This would be a much easlier program to implement, it would pay off those toxic assets, it would keep neighborhoods in tact, homeowners will have more to spend helping the economy. Only negative I see is when it is time to sell. It will make these homeowners more tied to their property, If the prices have not come back, then a short sale might be appropriate or assumablity if it is still under water.
    The other risk is excess inflation which is not going to happen in the current housing market. These funds should come from the Fedral Reserve-monetary creation not the fiscal budget as it will pay off those toxic assets that they created money to buy form the banks!!
    Mark S. Pash, CFP

  • ps56penn62pr64

    When you say, “Debt forgiveness is the only way out of this housing mess, so there much reason to hope this program succeeds.”, you are making the assumption that there is a way out of the mess.

    Based on the information provided in an illustrated article titled “How the Fed Works” printed in your Person of the Year issue of Time Magazine, I find your optimistic assumption is unfounded. The operation of the fractional-reserve banking is explained in an illustrated subsection of the article titles “How the Banking System Creates Wealth.” The system of fractional-reserve banking creates a majority of the American money supply by lending and re-lending the same money over and over, the banks’ action creating new money out of nothing without creating anything of commensurate value, charging interest on money that they did not have. The banking system is a classic Ponzi scheme, using debt in place of investment.

    Until the fraudulent fractional-reserve banking system is set right, there is little hope of getting out of this financial mess.

  • parakori

    If we don’t change, we don’t grow.
    If we don’t grow, we aren’t really living.

    http://japan-russia.jimdo.com/american-dream/

    If you’re in a bad situation, don’t worry it’ll change.
    If you’re in a good situation, don’t worry it’ll change.

  • tdhawk

    What everyone seems to have forgotten since the cash grab of TARP, TALF and all the rest is that the bad assets REMAIN on the banks’ balance sheets and “waiting” seems to be the only “plan”. I think the Fed, Treasury et al. realize that every bit of progress made since stepping back from The Brink could come unglued if this problem isn’t rectified soon, especially when you consider the wave of commercial loans that need to be refinanced, increasing Alt-A residential ARMs resetting/recasting, stubborn unemployment and multi-million dollar shortfalls in state budgets. I don’t know the exact solution, whether principal forgiveness, short sale free-for-all or low interest rate/40-year term but it won’t matter if owners don’t maintain employment or income enough to pay the bills.

  • paulinabohorquez

    What I have seen is that many people are not aware of the help that is out there. I think most homeowners are doing everything they can to keep their home and pay all the bills so they can maintain their credit and everything they have worked for. The sad part is that most people don’t have the savings to keep them afloat for too long. I think that the new programs will help. I’ve seen people let their homes go and just give up after one or two years of being unemployed or unable to find a job that pays what their old job did. If more people knew about and got help with adjusting their rates or forbearance and if banks were more responsive and helpful then foreclosures would go way down. This would result in neighborhoods maintaining and hopefully someday start appraising at a healthy percentage. Finally, as homeowners feel more secure and in control of their futures they can start building their lives again more responsibly and start spending in what they actually should be spending on. I think these two benefits will help our economy as a whole.

    Paulina Bohorquez

    Read more: http://curiouscapitalist.blogs.time.com/2010/03/08/will-short-sales-save-housing/#ixzz0hhPuORXP

  • economicsfordemocrats

    You are correct. I hope you are supporting the American Monetary Institute at http://www.monetary.org. The answer is in the monetary system not the fiscal-budget.
    Mark S. Pash CFP

blog comments powered by Disqus