Yet another government intervention into the housing market is about to begin. As we reported on the Marketplace Morning Report, beginning in April, the government will provide funds to banks and homeowners if they do a short sale in lieu of foreclosure. Like the mortgage modification program, this has little chance of succeeding.
Our New York reporter Alisa Roth describes short selling and the government's program:
Roth: The idea of this latest plan is to encourage homeowners accept a short sale. That's where you sell the property for less than the amount that's left on the mortgage. So to do that, the government says it'll pay $1,000 to the bank that's in charge of the mortgage. If there's a second mortgage on the property, the government will give up to $1,000 to the bank that holds it. And finally, it'll pay the homeowner $1,500 in what it's calling relocation assistance.
Perhaps some homeowners will appreciate a little moving money and the peace of mind that comes with getting the house sold instead of the impending doom of foreclosure. The problem is -- the banks just aren't that interested. Short sales are extremely labor and paperwork intensive. Plus, banks will only accept so much of a discount, while homebuyers are looking for a much lower price. More from the New York Times:
In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.
"This is not an opportunity for the customer to just walk away," Ms. Huey said. "If someone doesn't come to us saying, 'I've done everything I can, I used all my savings, I borrowed money and, by the way, I'm losing my job and moving to another city, and have all the documentation,' we're not going to do a short sale."
And the banks -- one in particular -- seem woefully unprepared for a wave of short sales. From the Orlando Sentinel
The chairman of the Orlando Regional Realtor Association, Kathleen Gallagher McIver, said recently that Bank of America has the worst record for expediting short sales, "and there's not anyone out there who will tell you otherwise."
Bank of America acknowledges it needs help with its short sales.
"We clearly recognize the need to improve the short-sale process for both our customers and the real-estate professionals who are critical to a successful transaction," said Jumana Bauwen, a bank spokeswoman.
B of A is working on it. But if the mortgage mod program is any indication, the short sale program has little chance of making a difference:
Clermont resident George Simmons said he is now totally frustrated, having tried for more than a year to get Bank of America to convert a series of trial modifications into something permanent.
"Let's see, the last correspondence I had from them said they didn't have my income-tax return and my Social Security records," Simmons said. "I sent it to them so many times. I've got my fax receipts and my certified postal receipts. They just keep asking for the same paperwork over and over and over again."