The New York Times is reporting a new tack taken by the Obama administration to address the foreclosure crisis, this time acknowledging that some homeowners need to simply get out of their mortgage by way of a short sale, where a property is sold for less than the mortgage balance.
This new maneuver comes just a week after President Obama headed to Nevada to promote the $1.5 billion, Help for the Hardest Hit Housing Markets program that hones in on five states hit hardest by the housing bust—Nevada, Florida, Michigan, Arizona, and California—and works with state and local housing finance agencies to increase their capacity in addressing areas that have seen a 20 percent drop in home prices since their peak.
But with this short-sale initiative, the administration is taken arguably its most aggressive step in trying to address the housing crisis — a crisis where solutions have been elusive to say the least.
The Times reports that under the short-sale program,
“the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Ideally, the program will allow the servicers to get more money than they would with a foreclosure, and for the borrower, the ability to short-sale could limit credit damage than damage incurred when defaulting on a loan. The Times also notes that it could also benefit communities, limiting the number of vacant properties in line to be sold by banks.