The New York Times is reporting that a new Federal program seeks to provide new incentives for borrowers and lenders to resolve distressed mortgages via short sale. The new program, scheduled to take effect on April 4, will provide cash incentives to increase the number of successful short sales.
In a normal short sale, banks allow borrowers to sell their home for less than is owed on the mortgage. In some situations, borrowers are still on the hook for the remainder of the loan's balance. The new Federal program would absolve the borrowers of that deficiency. It would also provide cash payouts to lenders and borrowers.
One key element that may actually make this program work is that lenders will have realtors assess the value of the properties and then be forced to accept an offer that comes in at or over the assessed value. This is a large step forward from the current system where lenders will reject a short sale offer if they subjectively feel that the offer is "too low."
Only time will tell if this is going to be more or less successful than the HAMP loan modification program. At very least, it should keep a few REO properties off of lenders' books.
