Administration Pushes Short Sales And Deeds In Lieu

Today the Obama administration announced a new addition to its Making Home Affordableprogram that gives servicers and borrowers incentives to do short sales and deeds in lieu of foreclosure.

These are in the cases where an Obamamod (a modification under the MHA program) doesn't work because the borrower simply can't afford anything. I'm glad to see them address these options, although it's certainly telling that by doing so they are admitting clearly that the modification plan isn't going to help everyone.

As for the new plan, I understand why the servicers would need the incentives. Short sales and deeds in lieu are wildly complicated, paperwork intensive and much more expensive for a servicer to deal with than a simple foreclosure where they pay a few attorney fees. What I don't get is why the borrower needs $1500 to "relocate" after a short sale or a DIL. It's nice of course, to help folks out who need to move, but is it really necessary in this case to spend my hard-earned tax dollars on that?

I mean, by doing a short sale the borrower is getting out of the home without the credit hit that a foreclosure would cause and a deed in lieu also wipes the debt clean. Most of the borrowers who would choose this option have no equity in the home anyway and probably couldn't afford the home in the first place. Why exactly are they getting $1500 on top of a clean exit?? Why do they need an incentive, when the only other option would be foreclosure, when they'd be forced out anyway?

I'm all for simplifying and streamlining the short sale and DIL process, as many of you who write into the blog at are attempting these strategies. I also watched a colleague go through a short sale (see previous blog), and it was a total nightmare.

I realize the administration has to give away a lot to deal with the housing crisis, but do they have to give away the farm?

Questions? Comments?