Government Helps Short Sale Market
Monday, February 15th, 2010At the beginning of December, the Treasury Department unleashed some pretty powerful initiatives to expedite and encourage the influx of short sales. As many as 33% of pending sales reported by the National Association of Realtors, are short sales. Unfortunately many of these sales fail to close.
This trend has caused the Treasury Department to take a hard look at the process. The most glairing breakdown in the system is the prolonged amount of time these transactions take. Investors get discouraged and move on. There are plentiful supplies of short sale housing. With each failed short sale, the existing inventory of homes for sale continues to grow and lowers values of other properties.
The Treasury realizes the need to strengthen the real estate market and cut into the over-abundance of existing inventory. In 2009, 500,000 short sales have been completed. More than twice that number of short sales has failed to close.
The new plan is designed to assist homeowners who do not have the income or debt levels to capitalize on the government-backed $75 billion loan modification program called the Making Home Affordable.
To qualify for short sales assistance, the subject property must:
· Be the homeowners principal residence
· The mortgage must be delinquent or default must be in the offing
· The original loan had to be issued prior to January 1, 2009
· The homeowners total monthly mortgage payment must exceed 31% of their before-tax income
The short sale seller will receive $1500 to help offset moving costs.
Short sales are preferable to foreclosure because while they will affect the borrower’s credit rating, the negative effect on lasts about two years. Meanwhile, neighborhood property values are not as negatively impacted as if a foreclosure had taken place.
Lenders are finding short sales save them money as they do not have to go through the expensive foreclosure process. While not the chosen result, the new short sale program should benefit all parties.
