The Obama administration came up with a new plan that is aimed at trying to breathe some more life into the morbid real estate market. It still needs quite a bit of help from wherever it can get it. This time the focus is on short sales, and why not. Anyone - real estate agents, mortgage consultants, buyers, sellers - who has been involved in one of them, has some real life horror stories to tell.
The initiative has two parts to it. One attempts to streamline the paperwork requirements for everyone, from mortgage lenders to servicers to investors to distressed homeowners. When it gets simplified, it ought to cost less to do a short sale and potentially also get it done faster. One of the major roadblocks so far has been the slow, snail-like progress of these things, to a point where well-qualified buyers with a mortgage approval in hand just give up and put an offer on some other property.
The other is financial. Washington, or the taxpayer, is paying up to $1,000 to mortgage servicers and up to $1,500 to borrowers for a closed short sale or a deed in lieu transaction. In a deed in lieu the homeowner voluntarily transfers ownership to the mortgage firm. The program will also pay up to $1,000 to a second mortgage holder if it releases the lien to allow a short sale to proceed.
This plan could be specifically beneficial to areas that have been literally mauled by dropping prices, like Las Vegas, many California and Florida counties and Phoenix. Still, it appears that the government's success projections for it are quite high. The incentives simply aren't that impressive. What it might do is give the nation a feeling that Washington is indeed on top of things and tries its best to solve problems. In short, offer a psychological boost.
The real difference will come when the banking establishment comes to realize that it just might be in their best interest to do short sales. And do them in a timely manner and based on realistic decision-making.