Treasury Dept Issues New Rules for Distressed Homeowners
The Treasury Department unveiled sweeping rules this week to help financially troubled homeowners who need to sell but can't get a price high enough to pay off their mortgages. Homeowners will even get $1,500 to help cover their moving costs.
The plan is designed to help homeowners who don't have the income or debt levels to qualify for a loan modification under the Obama administration's $75 billion Making Home Affordable program. The plan establishes timelines, a standard process and documents, and cash incentives for participation. It is designed to accelerate the necessary agreements between lenders, real estate agents, buyers and sellers.
Short sales reduce the damage to the borrowers' credit record and save the lenders the cost of foreclosure. They also help neighboring property values because the sales price is usually higher than what the house would bring in a foreclosure auction.
About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, according to the National Association of Realtors, and far higher in Florida.
To qualify under the new guidelines:
• The property must be the homeowner's principal residence.
• The homeowner is delinquent on the mortgage or default looks likely.
• The loan was made before Jan. 1 this year and is less than $729,750.
• The borrowers' total monthly mortgage payment exceeds 31 percent of their before-tax income.
A short sale can be better for the borrower and save the lender the cost of a foreclosure, but is still dependent on all parties agreeing on the procedure and price, and then finding a willing and able buyer.