The U.S. Treasury Department on Thursday announced changes to
encourage mortgage lenders to slash loan payments in the worst-hit
markets and use so-called short sales to extract troubled home owners
from unaffordable mortgages.
The Treasury will use up to $10 billion from a previously announced
$50 billion pool of mortgage modification funds for payments to address
lender concerns that home prices will continue falling in high-cost
areas. These incentives will be calculated on recent declines of local
home prices and average home prices in these markets, the Treasury said.
Under the short sale program, lenders can receive a $1,000 payment
for allowing the owner to sell the house for less than the amount owed
on the mortgage and accepting the proceeds as full repayment. They can
also receive $1,000 for accepting a similar deed-in-lieu transaction,
in which the deed is simply transferred to the lender instead of going
through a costly foreclosure.
Borrowers who agree to short sale or deed-in-lieu deals can received
up to $1,500 in closing costs and Treasury also will pay second lien
holders up to $1,000 to relinquish their claims in such transactions,
the Treasury said.
The new incentives are among a number of recent refinements to the
Obama administration's housing rescue programs. A Treasury spokeswoman
said these payments will come from the same $50 billion used to
encourage other types of loan modifications and extinguishment of
Since the program started in March, the Treasury said more than
55,000 loan modification offers have been extended to borrowers. About
300,000 letters have been sent to homeowners who might qualify for
U.S. Treasury Secretary Timothy Geithner
said the program would aid modifications in areas suffering from home
price declines. If a modification is not possible, we are also
announcing steps to encourage the quick private sale or voluntary
transfer of property, which will save homeowners money and protect
their financial future, Geithner said.
Historically low interest rates are allowing Americans to refinance
and save money, and modifications are helping homeowners avoid
foreclosure, Treasury Secretary Timothy Geithner said in a statement.