Most of us have read the Treasury Department’s new Homeowner Affordability and Stability Plan
After reading the plan, with details to be unveiled on March 4, I want to know- “How will the plan affect Short Sales? ” Most of the plan is focused on aiding homeowners whose primary residence is at risk of foreclosure. Not everyone will be helped by this plan. Some of those who won’t may include homeowners with loans not guaranteed by Fannie Mae or Freddie Mac. Many have lost jobs or have lost so much income they would not qualify. Other owners may have rental properties that cannot be sustained. In my area on the Emerald Coast of Florida, military families from Eglin Air Force Base or Hurlburt Field are required to relocate to change bases. These airmen often keep their past residence as a rental property. Now they are losing tenants. Why? Many unsold homes go on the rental market. Thus rental rates have declined significantly due to the oversupply of these properties. They can no longer cover their mortgage payments. There are also investors who were not “flippers”. They might have saved their whole lives to buy a condo in Destin, to find that the resort-rental market has declined by 35%. There is no aid to them in the plan. Many areas in Florida and other parts of the country have economies that depend on tourism and the resort industry. Those who will not be assisted by the plan will have to resort to their best alternative, a short sale, or worse, foreclosure.
The Treasury Department states the Homeowner Affordability and Stability Plan will be effective because it will, among other things, limit “the Impact of Foreclosure When Modification Doesn’t Work: Lenders will receive incentives to take alternatives to foreclosures, like short sales or taking of deeds in lieu of foreclosure. “
In my opinion, to receive incentives to approve short sale, banks must be required to:
- Shorten approval time frames to 30 days
- Require second mortgage holders to accept a set amount, such as $3000, to release their lien
- Consider incentives for approving investment properties that meet certain criteria, as mentioned above
- NOT report a “charge off” or “settled for less” to credit reporting bureaus
Further, I believe all who have had short sales should have credit reports revamped to remove the negative impact of the event. If they don’t, perhaps only 10% of borrowers might qualify for a loan at the best rates! If the government is “intervening” at all, then do it right. Thus far, the banks have done little to reduce the backlog of short sales and free up credit. If they are just given an “incentive” without definitive guidelines, then we might expect to see more of the same.