REO Bank Foreclosures Contained by Accelerated Short Sales
REO bank foreclosures will be contained by an enhanced short sale initiative under the Home Affordable Foreclosure Alternatives Program. The enhanced HAMP program will simplify the short sale process so that more homeowners who no longer have the ability to continue home loan payments do not have to undergo foreclosures that cut down their credit scores.
Housing advocates, real estate brokers and community groups prefer short sales over foreclosures because short sales do not significantly affect the credit scores of homeowners. Short sales also leave houses in better conditions than when homeowners are forced out of the homes.
Some lenders do not easily approve short sales because of sharp losses, but they accept short sale proposals once they see some advantages in a proposed short sale deal.
To facilitate short sale transactions, the enhanced HAMP program provides incentives to mortgage lenders, servicers and borrowers. For every short sale or deed-in-lieu transaction completed, lenders or servicers are given $1,000. Borrowers willing to move out of the homes and leave the properties in good condition are also given $1,500 to help them in their relocation.
Over the past months, short sales aimed at cutting down REO bank foreclosures took a long time to get completed, discouraging buyers, homeowners and real estate brokers from pursuing the transactions. Lenders took a long time in accepting the proposed purchase prices and signing agreements that remove the accountability of borrowers for deficiencies in payments.
Under the enhanced program, mortgage services are given 10 days to accept or reject a short sale proposal. When accepting the proposal, they must also agree to accept the short sale price as full payment for the home loan and free the borrower from any loan obligation.
The program also bars mortgage lenders or servicers from reducing the sales commissions of agents carrying out the short sale. This is to encourage more real estate agents to sell homes in short sale listings.
The new program also tackled the share of subordinate lien holders in short sales and limited their share to an aggregate total of $3,000. Subordinate lien holders have been demanding a greater share of the short sale proceeds in recent months. Among the biggest subordinate-lien holders are Wells Fargo, Bank of America, Citigroup and JPMorgan Chase.
According to some bank officials, the short program is effective in reducing the number of REO bank foreclosures, but it should recognize the positions of second lien holders.
