rssTreasury Provides Details of New Short Sale Incentive Program
Monday, March 08, 2010 at 3:11 pm
- 10 Comments
Less then a month after the announcement that the federal government was going to start an incentive program to encourage buyers and banks to sell houses at depressed values without foreclosures, David Streitfeld of The New York Times has the details — and they’re a little strange.
The basis of the program, which starts April 5, is much as it was described in February: The bank servicing the mortgage will get $1,000 for a short sale if it agrees not to go after the homeowner for the remainder of the mortgage; another $1,000 goes to the servicer of a second mortgage, if there is one; and the homeowner gets $1,500 in “relocation expenses.” If there’s a third mortgage, that bank gets nothing, but can still hold up the short sale.
The big supposed benefit is that short sale homes won’t be listed as foreclosures per se, so communities think they won’t be ransacked by former owners or vandals. Since if the bank took possession of the home and then short sold it, the bank would be listed as the seller of record in all legal documents, homeowners will seemingly keep possession of the homes, but they may or may not continue to occupy them.
The really strange thing is that the acceptable value of the home — which is expected to be less than the value of the mortgage but, with many short sales, may be less than the supposed market value of the home — will be determined by the bank in concert with a licensed real estate agent and not shared with the owner. Banks that agree to the program must agree to take any offer that is equal to or lesser than the value as determined by the real estate agent. What’s so strange about that is that normally banks determine the value of a home they are about to mortgage with the help of an appraiser, not an agent. At the height of the real estate crisis, appraisers were the people who verified to banks that the houses were worth at least as much as the mortgages, and during the crisis, those determined values often meant that people had homes worth less than the value of the mortgage.
On the other hand, the National Association of Realtors is a lobbying powerhouse and, in the case of a foreclosure, their army of Realtors may make no money at all. In a short sale, if everyone plays along, a Realtor will earn an appraisal fee from the bank in addition to the standard 6 percent fee he or she collects from a buyer. Unless the home sells for $25,000, the Realtor involved in the short sale stands to make more than the seller and, if the home is worth more $75,000, more than all the parties combined. It sounds like someone else might be getting a nice little bailout, too.
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10 Comments
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Comment posted March 9, 2010 @ 1:38 pm
Megan,
Are you by chance a 5th grader? I cannot believe you are a paid journalist. Your facts regarding realtors are at best gross generalizations but more over, wrong. Your grammar and sentence structure is painful to read.
That being said, with regard to appraisals and realtors:
1) appraisers don't verify values, they assign values using the same criteria and methods realtors do, though with an attempt to be a bit more detail oriented in their comparisons. When they develop a figure, they report it to the bank and the bank compares the value to the amount the buyer is applying to borrow. This is the loan:value ratio. Therefore, it should be no surprise that banks granted loans on homes deemed to have less “value” than the amount of money the borrower was applying for. The reason homes subsequently go “underwater” is not because of lost value, but because the owners either had to get multiple mortgages to get the home, meaning they could not afford it and the banks knew this, but gambled they would get their money back no matter what, or because the owners leveraged their homes to get lines of credit for repairs, vacations, college loans, etc., then lost their jobs and could not pay any of their loans leading to banks to put liens against the property and ultimately foreclose.
2) your last paragraph is contradictory: you first state realtors make no money in these deals, then accuse them of making more than in reality. With no help from the NAR, this army is composed of hardworking individuals who operate their business virtually unsupported by other realtors. Furthermore, buyers rarely pay fees or commissions to realtors and when they do, it is never more than 3.5% although in best of times in some markets it could have been as high as 5% but that is rare. The custom is for the seller to pay both sides of a commission which could be 6% if each side was contracted to make 3%. I've never heard of a realtor earning an appraisal fee and a commission. Seems like an appraiser is the one who gets an appraisal fee, and that is paid for by a buyer ordianarily and in short sales, by the bank.
Pingback posted March 10, 2010 @ 1:32 am
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Pingback posted June 19, 2010 @ 6:15 am
[...] to web 1.Making Home Affordable Update: Foreclosure Alternatives and Home … May 14, 2009 … Short Sales/Deeds-In-Lieu Program to Facilitate Foreclosure Alternatives o [...]
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