Up until recently, President Obama’s plan to counterattack the foreclosure crises in the United States was to keep homeowners in their homes.  Now, the plan has changed as the Obama Administration is looking to help homeowners sell their homes at a loss.  Under the short sale program, homeowners that have defaulted on their mortgages will get paid to leave their homes. 

In an article entitled Program Will Pay Homeowners to Sell at a Loss for the New York Times, author David Streitfeld writes, “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.”  Streitfeld also says that, “More than five million households are behind on their mortgages and risk foreclosure.” 

This alarming number prompted the Obama Administration to launch a $75 million mortgage modification plan, but the initiative was only successful at helping very few homeowners.  For example, in the month of October, 500,000 people tried to modify their home loans, but only 2,000 were successful at obtaining permanent loan modifications (New York Times).

With millions of homeowners in the U.S. on the verge of losing their homes, the government needs to take action or the crises will escalate.  It seems that the government’s response is the new short sale program, which is scheduled to begin on April 5, 2010.  Instead of trying to obtain loan modifications, homeowners will now be encouraged partake in short sales. 

The new plan is supposed to make the short sale process easier for both homeowners and mortgage lenders.  In the past, many homeowners complained that mortgage lenders and banks had made the short sale process an utter nightmare by refusing to accept offers from buyers.  Now, banks will be asked to accept offers, even if they are for less than what they expect.

The program has many benefits for homeowners and communities.  For example, homeowners will not have to worry about incurring damage to their credit ratings because they will avoid foreclosure.  Communities will have less foreclosed properties and instances of vandalism.  Yet, even though there are many pros and a short sale boom seems eminent in 2010, lenders are wary and anticipate fraud.  They also do not want to sell properties at a loss.  To them, it is just bad business and the program presents great risks.

At American Economic Solutions, we think that it is about time that the government passes an initiative that addresses the issues homeowners are confronted with in this tough economy.  So much has already been done to help banks and lenders.  Now it is time to focus on what the middle-class needs, better foreclosure solutions and compliance from mortgage lenders.  We are very excited about the possibilities the new short sale program presents and are looking forward to helping homeowners avoid foreclosure.