Gary Dwyer's Real Estate Blog

Thanks to RISMEDIA for this update on the federal mortgage-modification program and how short sales are not a component of the program:

With the highly touted federal mortgage-modification program falling short of its target numbers, the government has looked into alternatives to foreclosure and come up with a possible, though not original, solution: the short sale, a transaction in which the lender accepts less than the balance owed on the mortgage.

Beginning April 5, 2010, under new Treasury Department rules, short sales will be presented as the potential next step for homeowners who are rejected by or fail to make the grade for the federal Home Affordable Modification Program (HAMP).

RealtyTrac chief economist Rick Sharga suggested that offering the short sale program is the administration's acknowledgment that its current mortgage-modification effort "can't solve the foreclosure problem by itself."

Kevin Gillen, vice president of Econsult of Philadelphia, said there was both statistical and anecdotal evidence that lenders have been holding off on foreclosure proceedings. "No doubt that part of this is due to staff shortages relative to the volume of delinquencies, but it's also due to uncertainty over near-term government policy," he said.

Sharga sees positive elements in the new guidelines: Both homeowners and mortgage servicers will have financial incentive to participate in short sales; there are limited payouts for second lienholders and paperwork is standardized, which makes it easier for everyone to comply.

The new Home Affordable Foreclosure Alternative program will run until Dec. 31, 2012. Among its provisions:

-The lender must offer a short sale in writing to the borrower within 30 days after the borrower either is ruled ineligible for mortgage modification under the HAMP program or has been ruled unable to sustain payments under a trial plan.

-A borrower may receive up to $1,500 to assist with relocation expenses.

-Incentives of $1,000 will be offered to lenders for each completed short sale. For each deed in lieu of foreclosure, in which the borrower voluntarily transfers the property to the lender, $1,000 will be paid to the lender.

-A lender with a second lien on the property will get up to $3,000 of the short sale proceeds, or can pursue a short sale outside the program if it doesn't agree to share.

-The lender will not be permitted to reduce the real estate agent's commission after an offer on a property has been received.