Short Sale Incentive Added to Obama Program

Under new guidelines, mortgage lenders would be eligible for government incentives if they allow borrowers to sell their homes at a loss. These short sales are less costly and time consuming compared to foreclosures.

Although the main thrust of the Obama Affordability Plan is to keep homeowners in their homes, this change is a recognition that with increasing unemployment and crushing debt, some home loans may not be salvageable.

Banks that allow a short sale would receive up to $1,000. According to the National Association of Realtors, short sales have accounted for one out of six home sales this past year.

Lenders can also get the $1,000 for accepting a deed-in-lieu, which releases the borrower from all future obligations on the loan in exchange for the deed. Second mortgage holders will also get $1,000 to release the borrower from obligations on these loans.

The program includes an additional incentive for lenders to modify existing loans – $10 billion to protect them from losses due to falling home values in severely distressed areas. This is designed to backstop borrowers who might default again on newly modified loans.

Since the Obama plan was launched in March, more than 55,000 homeowners across the nation have been offered mortgage reductions. Since millions are eligible, more needs to be done.

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