Short Sale Of The Century

The Obama administration's newest effort to try to stem the foreclosure tide of the millions of American homeowners who owe more than their house is worth?  Government assisted short selling.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

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.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

It's a damn good idea on paper.  Congress refuses to play ball on cramdown or forgiveness, so let the executive branch handle it through Treasury.  But let's be honest here, there are five million homes facing foreclosure and millions more underwater.  This program won't be nearly enough.

The government's willing to give you $1,000 each for up to two home loans, plus $1,500 for relocating.  That's a decent chunk of cash there for five million homeowners, but if you figure the bank has to eat $50,000 on each short sale, and multiply that by five million...that's a quarter of a trillion bucks right there.  Somehow I don't think the banks are going to go for too many short sales where they forgive Americans for this.

Still, it's better than nothing.  Not by much (a thousand bucks on a $200,000 mortgage?  Really?) but it is better than nothing.