Short Sales Can Take a Long Time

Sometimes, when a homeowner can no longer afford their house payments, they can arrange a short sale with the lender. In a short sale, the lender agrees to accept the proceeds from the sale of the home, even though they are not enough to cover the full loan amount. Lenders often agree to this because, even though they get less than the amount the homeowner owes, they actually save money by not having to go through the costs of foreclosing on the homeowner. And the homeowner avoids foreclosure, thereby preserving their credit rating. A short sale can be a great solution for both the lender and the homeowner.

But if short sales are such a good deal for everyone, why are they so difficult to arrange? The first reason is the amount of paperwork involved. The lender wants to see documentation to confirm that the homeowner really can not afford to continue making payments. And once they make that determination, they need to assess the value of the home by hiring an appraiser or having a Realtor provide an estimate of value.

Once an offer comes in, the lender tried to ensure that the proposed sale is an "arm's length" transaction. They want to make sure the buyer has no relationship with the seller that would give the seller an incentive to offer the home on special terms. They also need to confirm that the buyer has the funds to afford the house. Sometimes the lender requires that the buyer be approved by the lender's underwriter.

Even if all this goes well, there can be complications. If the seller has a mortgage and a home equity line, both lenders must approve the deal. This can be extremely difficult when the sales price may not be enough to cover the value of first loan, let alone a second loan.

If you think a short sale may be the solution to your mortgage problems, contact your lender now. The sooner you start this process, the more likely you will be able to find a deal that works for everyone.

Basic Facts About the Mortgage Crisis

If you need help paying your mortgage, here are some suggestions:

Call your lender NOW. The sooner you contact them, the more they may be able to do to help;

Do not move out of your home. If you abandon the home, you may not qualify for assistance;

There are LOTS of scammers trying to steal your money, home, or both (see Foreclosure Relief Scams). If you want help, make sure you are speaking with a HUD- approved housing counselor. You can find approved agencies near you by calling HUD at (800) 569-4287.

Here are some others numbers that may help:

Operation Hope (877) 592-4673;
NeighborWorks (888) 995-HOPE;
National Community Reinvestment Coalition (202) 628-8866;
National Council of LaRaza (202) 785-1670;
Neighborhood Assiatance Corporation of America (888) 302-NACA;
Acorn - Home Equity Loss Prevention Program (888) 409-3557; and
National Foundation for Credit Counseling (866) 557-2227.

Hope Now - Providing Hope for Bankers, Not Borrowers

Last July, in an attempt to help mitigate the growing foreclosure crisis, the government announced the creation of Hope Now. If a borrower was having trouble making home loan payments, they could call 1-888-995-HOPE where they would be put in touch with credit counselors and lender representatives.

The credit counselors would discuss ways to restructure debt and manage finances. If the borrower needed some extra time to catch up on payments, a loan representative could offer a repayment plan which afforded the borrower some flexibility in making the payments. If the borrower could no longer afford the loan, the lender representative would review the terms of the loan and, if possible, offer modifications such as a reduction in rate, forgiveness of a portion of the principal, or change in the maturity date. As of March, 2008, Hope Now claims to have been responsible for a total of 1,035,000 loan workouts which included 758,000 repayment plans and 278,000 loan modifications.

But a New York Times article written by Lynnley Brown asserts that Hope Now is, in fact, offering very little hope. This is because, as Ms. Brown explains, it is run by the very same people who caused the problem. Here are some examples.

The executive director of Hope Now is Faith Schwartz. Ms. Schwartz is also an executive at Option One Mortage, a subprime lender. Hope Now is run out of the Housing Policy Council which is part of the Roundtable, a financial services lobbying group. Hope Now is also backed by the American Securitization Forum. The Forum and the Roundtable are both on record as opposing any government housing effort that would require them to take losses on bad mortgage loans. Another component of the Hope Now alliance, the non-profit Homeownership Preservation Foundation, was established in 2003 with a $20 million grant from GMAC-RFC, a mortgage lender. “Hope Now is a failure," said Michael Shea, the executive director of the Acorn Housing Corporation, a large counseling agency that is part of the Hope Now alliance. "It's industry-dominated."

But if Hope Now is a failure, then what about the million plus borrowers they claim to have helped? Even Hope Now says it is unsure how effective it is. They admit that they do not differentiate between the number of loan workouts that occur as a result of their efforts and those that might have happened anyway. But William A. Longbrake, vice chairman of Washington Mutual Savings and Loan and a senior policy adviser to the Roundtable, says he has “indirect, inferential evidence” that Hope Now is helping. So what sort of help do they provide?

Hope Now receives over 4,500 calls per day, but only 4% of callers ever get to speak to a counselor. It could be because many became frustrated with the long hold time and hang up. Hope Now claims that callers typically wait less than 30 seconds to be connected to a call-center operator. But a reporter who called Hope Now was kept on hold for 50 minutes before hanging up.

When a borrower does finally reach a counselor, these counselors are urged to follow the guidelines of the American Securitization Forum which represents financial companies that bundle mortgages for sale to investors. The Forum's executive director, George Miller, told The Times that it represents the interests of investors and "we want to minimize losses on bad mortgages and maximize recovery." Both the Forum and the Roundtable oppose opening up bankruptcy courts for struggling homeowners because it could lead to further losses for the banks.

I am sure there are some borrowers who have been helped by Hope Now. But based on The Times report, bankers, not borrowers, can be a lot more hopeful.