New York Times: Program Will Pay Homeowners to Sell at a Loss
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
The Times examined the impact of subprime lending in Newark back in 2007, revealing the heartbreaking impact of this long-running crisis. While the prospect of short sales were originally shunned by banks, the Obama plan introduces some hope of stemming foreclosures and preventing a slide back into economic decline.