The latest issue of Shelterforce examines a handful of short sale and bulk note purchase programs—Second Opportunity of Arizona, the Mortgage Resolution Fund, Oregon’s Loan Refinancing Assistance Pilot Project—that are all designed to keep a homeowner in their home with a new mortgage for the current market value of the house tailored for market conditions and funding environments.
We all know the benefits of a good loan mod and new data shows that principal reduction can lower redefault rates. The homeowner, as reported in the article, “keeps their home, preserves their credit, and gets a more affordable payment. Investors avoid the additional loss that would happen if the loan went to foreclosure. And, of course, the neighborhood benefits by reducing the serious negative effects of having another building go vacant.”
But for a host of reasons—some structural, some habitual, some having to do with misaligned incentives on the part of lenders and servicers—HAMP and bank-driven modification programs are not reaching everyone who could actually afford to keep their homes.
What has resulted are these still-nascent programs, spawned from a sense of frustration with families unnecessarily losing their homes and subsequent declines in neighborhood values and stability. In order to go upstream to get control of these homes pre-foreclosure, some community development advocates are buying pools of delinquent loans and modifying them themselves, with many using Hardest Hit Funds to buy pools of notes.
Hopefully, these programs will benefit from legislation like the Prompt Notification of Shorts Sales Act, which establishes a 75-day time limit for lenders respond to a short sale request from the homeowner. “The hope was if we passed this at 75 days that other banks would realize they could do it more quickly than that and maybe cut it down,” Ohio Sen. Sherrod Brown, one of the bill’s co-sponsors, told The Columbus Dispatch. “I can’t imagine there are that many buyers who are willing to wait four months or five months when they thought they were going to buy a home. They have other decisions to make.”