When the Obama administration announced recently that they were expanding their housing rescue plan to include incentives for banks to approve short sales, they were applauded for their actions and rightfully so. Its about time they realized that their initial plan, heavily dependent on loan modifications, was falling short. According to a recent Reuters article only about 3% of delinquent loans are being modified, a far cry from the administration’s goals.
The irony of the recent “short sale” announcement is that we only had to look to our very own Department of Housing and Urban Development (HUD) to find a blueprint for government regulated short sales. The new Foreclosure Alternatives Program (FAP) looks quite similar to a 15 year old program called the HUD Pre-Foreclosure Sale (PFS) Program. The PFS Program is targeted at FHA insured mortgages and allows borrowers to sell his/her home and use the net sale proceeds to satisfy the mortgage debt even though these proceeds are less than the amount owed (aka. Short Sale). It is actually a decent program, with incentives for the bank to complete the short sale and a provision for up to a $1,000 incentive for the borrower as well.
Here is the problem: even though the PFS Program has been around for over 15 years, in our experience loan servicers still don’t understand the program that well and it is far from being an efficient process at the bank level (try asking for the HUD desk). And, just try to find any relevant information about the program (the HUD web site is limited) and you’ll likely get confused and opt for foreclosure (just kidding – foreclosure is rarely a better option, but the information is definitely lacking). My point is that if the government is going to promote short sales, don’t make the same mistakes with FAP that you made with PFS. Make the information accessible to borrowers and make sure lenders understand the program and are accountable for its implementation. After all, many of the large lenders are already on board with FAP – lets give them more than some easy PR and make sure they put their money where their mouth is. And finally, you promised more information on FAP before the end of July – is it too much to ask that you lead by example and show lenders how to meet a deadline? 11 days to go ;0)
By the way, we know how to help FHA borrowers with those troublesome PFS short sales – they really aren’t that difficult when you take the time to do the research and talk to the banks. Give us a call and we’ll be happy to talk you through it.