March 10, 2010
If Only We Hadn’t Already Used Our "Making Flippy Floppy" Headline
"Taking effect on April 5, the [government's new 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....Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed."
First Published: March 10, 2010 5:45 AM
Comments from "Plugged In" Readers
A short sale still hits your credit report fairly hard right? Plus, now you get to pay a capital gains tax on the different between the loan balance and the short sale amount.
Given that the credit ramifications of a short sale v foreclosure are similar, I'd prefer a foreclosure to avoid the taxes.
In a non-recourse state like CA, what purpose does compelling short sales serve?
Posted by: rr at March 10, 2010 11:11 AM
Exactly. We're already non recourse on firsts here and $1500 is nothing in this town. Plus, does anyone think this will solve red tape issues? HAFA is aimed elsewhere than San Francisco.
Posted by: anonn at March 10, 2010 11:26 AM
I'm particularly troubled by the requirement that the listing agent (who owes a fiduciary duty to the seller) would have to withhold material information (the determined FMV) from the seller and give that information instead to the mortgage holder. That completely messes with fiduciary duties.
Of course, I believe that real estate agents thumb their noses at their fiduciary duties, so most probably won't think this is a big deal.
Posted by: D at March 10, 2010 11:58 AM
This is probably not a program with San Francisco in mind... more like $100000 houses in the boonies.
Posted by: Alexei at March 10, 2010 2:15 PM
Woohoo! Let the short sale land rush begin!!! This is aimed squarely at CoCo county. And when it hits the prices of CoCo county, the prices of the more expensive areas will look too high in comparison and they fall too!!!
SF real estate prices are doomed! Doomed, I tell you! Doomed!
Posted by: tipster at March 10, 2010 2:39 PM
Am I missing something? At least superficially, this would affect SF. If borrowers are eligible for HAMP, they are eligible for HAFA -- see the NAR talking points:
The borrower must meet the basic eligibility criteria for HAMP:
First lien originated before 2009.
Mortgage delinquent or default is reasonably foreseeable.
Unpaid principal balance no more than $729,750 (higher limits for 2 to 4 unit dwellings).
Borrower’s total monthly payment exceeds 31% of gross income.
In addition, HAFA is for people who flunk out of HAMP, and we'll find out in the new numbers how many more people that ends up being.
Are you guys saying there are no people in this category in SF? Or are you saying that people in SF will walk away instead of get a DILF, or something else?
Posted by: anon at March 10, 2010 2:50 PM
What are you saying, because it looks like you're only quoting the guidelines? I know the guidelines and the rules. The chief benefit is that they'll be non recourse. California already has that. The other benefit is $1500. That's not even a first month's rent and deposit around here. The third aspect is that banks will supposedly be on board and better equipped. Well, you can look at what people are saying on BBSs around the Internets, but most people are scoffing at that. National banks will handle a flood of short sales better than they already are? Suuuuuure they will. Moot point for SF IMO, but I'm skeptical of that too.
Posted by: anonn at March 10, 2010 3:48 PM
One thing I read on it said it could help get the holders of 2nd mortgages to sign off on short sales faster since right now they have pretty much no incentive to sign off a sales that wipe them out. Of course a foreclosure is likely to wipe them out as well but agreeing to a short sale that doesn't give them anything just speeds up the recognition of their loss.
Under this plan they would at least get a $1,000. I don't know if it will be enough to get them to go along with it or not.
Posted by: Rillion at March 10, 2010 4:09 PM
Giving the second a measly $1000 is already the standard policy for short sales. And let's face it, most of the difficulties we've seen on this site, and that I've seen in person for that matter, have to do with the second and not the first. The people who pulled out all sorts of equity that's no longer there. HAFA does nothing new as far as that goes either. And foreclosing can still be an option. A lot of times there's nowhere near enough to make the second whole, but there's more than enough to get the second more than 1000 bucks.
Posted by: anonn at March 10, 2010 4:20 PM