The NY Times is reporting on a new Obama initiative to create a financial incentive for banks and home sellers alike to do short sales. A few highlights from the article:
- Program starts April 5, 2010
- Lenders will be “compelled” to accept short sales. We’ll see about that.
- The administration wants to streamline the process. We’ll see about that too.
- Financial incentives are $1,500 to the home seller, $1,000 to the lender, and $1,000 to a subordinate lender.
- Agents will be used to valuate the properties, but lenders will not be forced to accept offers beneath the agent valuation.
That last point is the rub: BPOs, or broker price opinions, are inconsistent and often unreliable. I do them, and I do not accept BPOs outside of a very small geographic footprint; however, many BPO agents are from far away and do robotic, formulaic, price per square foot hatchet jobs which do not accurately reflect market conditions. Once this happens, a short sale can be set back 6 months (yes, 6 months) or derailed completely. All because some guy from 50 miles away didn’t care to do his homework for the $45 fee.
The piece details another thing which I have long believed: lender are skeptical about short sales. A number of quotes detail suspicion of fraud and that is unfortunate. In the short sales I broker, I see nothing but earnest buyers and sellers. We never sell to investors. I have never sold anyone a home and then done a short sale on their old place (strategic default). Banks are engaging in “prevent defense” with this mentality. You throw the baby out with the bath water when you assume fraud at the expense of people who are seeking relief in good faith.
We’ll see going forward if this works. The worst thing about short sales is the abhorrent length of time and ridiculous red tape they consume. If the administration can indeed shorten and streamline the process, I’ll be the worst to give them credit. This much is true: something has to be done, because too many good people are suffering.