A startling 37% of all residential real estate transactions in the month of August were distressed sales. In response, the federal government has stepped up efforts to stem the tide of distressed sales. On September 17th, Treasury Secretary Timothy Geithner announced expansion the scope of the Making Home Affordable program.
The aggressive program now covers short sales under the new Foreclosure Alternatives Program. Under Geithner’s modified program, lenders are can receive $1,000 for participating in each short sale while buyers can receive as much as $1,500 to offset certain relocation expenses.
Freddie Mac and Fannie Mae support the Making Home Affordable program and are willing to work with buyers and sellers. In the past, short sale sellers could expect a negative credit report that could impact them for years to come. Under the new program, short sale sellers will be considered suitable applicants for mortgages after a period of two years.
In today’s real estate market, distressed sellers are finding that they have little or negative equity in their residences. This “underwater” scenario and employment uncertainty has placed many homeowners under undue pressure.
There are five basic options for distressed sellers:
· Forbearance – A short-term remedy based on the borrower’s future ability to make payments.
· Loan Modification – Privately and publicly backed programs to re-negotiate indebtedness. These programs are designed to keep employed homeowners ion their homes. It is recommended, but not absolutely necessary, to enter into loan modification discussions prior to becoming delinquent.
· Short Sale – An agreement between the current seller, current lender and buyer to avoid foreclosure whereby the lender agrees to accept less than full value for the loan.
· Deed-in-lieu of foreclosure – For sellers who are unable to either bring the loan current in a reasonable amount of time or who are unable to sell their home, the lender may agree to have the seller voluntarily transfer the deed. This can help avoid the impact of foreclosure on the seller’s credit rating.
· Program 3648 – There are many facets and initiatives in this legislation including relaxed tax repercussions related to the mortgage restructuring as well as debt forgiveness in connection with a short sale. Program 3648 is an aggressive effort by the private sector to avoid foreclosures and now encourages both lenders and purchasers to utilize the program.