Will Obama’s New Short Sale Program Help?

President Obama’s administration has been hard at work in turning this toxic economy around, and at the top of the list is the troubled housing market. Many borrowers who have fallen behind on their mortgages had hoped the government’s loan modification plan was the answer, but that only helped a handful. Starting April 5th, there will be more help on the way.

Starting on April 5th, the new short sale program will streamline the process for homeowners willing to sell their house to negotiate the details of the sale with their lender. For those not familiar, this is how a short sale works. Let’s say you owe $300,000 on your current mortgage, and have fallen behind on payments. The falling values of homes make the present market value for your house to be $250,000.

Rather than watch your home go into foreclosure, you now can find a seller willing to take the home off your hands for less(in most cases much less) than you owe. In the same example, let’s say you find someone willing to buy your house for $200,000, over 100grand less than you owe.

The new program will give your lender $1,000 for taking part in the program, as well as give you, the soon to be ex-homeowner, $1,500 in relocation assistance, according to the NY Times report today.

While the short sale program will help many, it won’t be the quick fix for all. Those borrowers with second mortgages or home equity lines of credit will still have a hurdle impacting them, convincing the other bank to in some cases take a complete loss on the loan they made. Even still, the opportunity for some to get from under an asset that is upside down, and not be legally responsible for the difference is too good to pass up.

Tagged as: Barrack Obama, foreclosures, the recession