just when i thought things couldn't get more stupid (loan, free market, foreclosure)

[floridasandy]

Short-Sale Program Will Pay Homeowners to Sell at a Loss - NYTimes.com


the federal government is now trotting out a new plan which will pay delinquent homeowners to sell their homes in a short sale.

what is the point of good behavior if only bad behavior is going to be rewarded in this country?

[CosmicWizard]

For your own sanity my friend, never again think that things couldn't get more stupid....because they invariably will.

[chet everett]

The short seller is NOT doing anything that most sane people would call "bad behavior". The vast majority of short sellers would prefer not to sell, but they have a mortgage that is grossly more expensive than their house is worth. When they sell it is true that they get out from under than bad debt, but they also don't walk away with any equity and most lenders at least do some investigation to see that they the seller is not a running a scam.

By putting the feet of the lender to the fire to more quickly accept short sales and giving the seller a small inducement to get out the home will settle in at it new price and the neighborhood won't become full of zombies...

[floridasandy]

i beg to disagree. the people who overpaid for their homes do not need to be "bailed out" by the rest of the population and be GIVEN A BONUS TO DO SO!

i suggest if they can't afford their homes, they should just walk away and give them back to the banks. let the banks deal with it, and at least that way the taxpayers are not paying these people bonuses. a lot of these people were allowed by the banks to put NO MONEY DOWN and have lost next to nothing, so the only people who should be eating the cost should be the banks that chose to give unqualified buyers homes with NO MONEY DOWN.

all of these bailouts and schemes wind up diverting the capital which this country needs to get job creation flowing again and with increasing job losses you can NEVER have a stable housing market.

[Ceece]

If I'm reading this right they are basically offering the bank $1,000 to short sale. How does that help when the bank is holding out for $43,000 more than being offerend like the situation in the article? And $1,500 to the homeowner? For what exactly?

[chet everett]

This is not a "bail out" it is a little 'carrot' to get things done in a speedy and orderly manner. Believe me their is no way that the legal costs of having 'dirty' titles and thousands of foreclosure suits can compare to the relative pittance of a enticing borrowers to come to a quick and orderly agreement with a buyer for their short sale and offering lenders a little something to cover the administrative hassle of doing this quickly.

The strong implication is that should lenders continue to drag their feet there will be harsher means of the government shoving these things through that will be more expensive / damaging to lenders and result in bigger "wins" for consumers....

[floridasandy]

ceece, just consider it a token gift from the taxpayers to try to bribe those who behaved badly. let's face it, this is just a little insult compared to the big insult that the government has already given the taxpayers/citizens. right now they are shifting this debt onto the taxpayers:
one year ago, the Federal Reserve held $69 billion of mortgage-backed securities. Their hoard now surpasses $1.027 trillion. here is a good explanation for how that was accomplished:
http://www.hussmanfunds.com/wmc/wmc100216.htm

the government continues to stick their nose into everything and continues to screw everybody over in the process, as they have no concept of a free market system. the true cost of all of this is that dishonesty is continually being rewarded on every level.

[user_id]

This is not such a bad idea, a short sale on multiple levels is better than a foreclosure. I'd much rather this than all the loan modification programs, those just delay reality.

Having a bunch of people stay in debt traps for years is not good for the general economy. I have no problem letting people suffer for their bad decisions, but when they start taking others down with them it becomes a general societal problem.

[floridasandy]

....or you could just let people walk away without paying them, and let the banks suffer the potential losses without paying them, which would give exactly the same net effect and not divert productive capital from the taxpayers.

[chet everett]

Again I disagree that it would be preferable to do anything to encourage debtors to abruptly abandon their obligations. The actual monetary costs associated with increased court fillings on the part of foreclosing lenders, Sheriff's evictions for foreclosed defaulted debtors, expected levels of damage inflicted in the eviction process and the subsequent inability of investors to justify any investment / repair would result in a massive "Detroit-ification" of large stretches of the country. Simply put there is little "productive capital" ever going into towns with the kinds of massive issues that face Detroit and if you think that is good thing you really are in much worse shape than any online forums could ever hope to undo...

There are tested legal methods that can result in a quicker and less disruptive turn around for areas littered with a combination of borrowers that cannot afford the obligations they've signed up for and lenders that were complacent in allowing lax standards to proliferate. The way out that involves modest inducements is far better than any total abandonment of legal principles....