Big Banks want MORE!!!

Big Banks and Financial Companies, the same institutions that set the stage for our current downturn, got billions in tax-payer bail-outs and are already becoming profitable (while many American’s continue to struggle or worry) would like yet another pound of flesh from those caught in the cross-fire.


It’s important to note that most of the recent and pending foreclosure activity IS NOT subprime, but prime loans and mortgages. These are A-paper borrowers succumbing to extreme economic challenges.


The piece below, from the CALIFORNIA ASSOCIATION OF REALTORS® provides information and background.

When is Enough, Enough?
The Big Banks are Opposing C.A.R.’s Bill to Protect Borrowers

C.A.R. is sponsoring SB 1178 (Corbett) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and are now facing foreclosure. Most homeowners didn’t even know that when they refinanced they lost their legal protections, and now may be personally liable for the difference between the value of the foreclosed property and the amount owed to the lender. SB 1178 will be voted on soon by the entire Senate.

One can’t help but think, “when is enough, enough?” Banks have already foreclosed upon a family’s home and now lenders can continue to hound them for additional payment. How much more money can today’s families afford to pay when they’ve already lost their homes and most likely their jobs? Are they never to have the opportunity to begin again?

Action Item
Call Senator Rod Wright Today at 1-800-672-3135
Urge him to vote “Yes” on SB 1178.
Non-C.A.R. members enter PIN number — 182003468

Background

California has protected borrowers from so called “deficiency” liability on their home mortgages since the 1930s, but the evolution of mortgage finance requires the statute to be updated.

Current law says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner’s liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers who are brought down by financial crisis to get back on their feet.

Unfortunately, the 1930s law does not extend the protection for purchase money mortgages to loans that re-finance the original purchase debt — even if the re-finance was only to gain a lower interest rate. Recent years of low interest rates have induced tens of thousands of homeowners to re-finance their mortgages, yet almost no one realized that by re-financing their mortgages to obtain a lower rate, they were forfeiting their protections. These borrowers became personally liable for the balance of the loan.

C.A.R. is Sponsoring SB 1178 Because:

SB 1178 is fair. Home buyers, and lenders, entered into the purchase with the idea that the mortgage would be non-recourse debt, and that the lender would look to the security (the house) itself to make good on the debt if the borrower cannot. It meets the legitimate expectation of the borrowers, who have no idea that they are losing this protection by a re-finance. Homeowners didn’t know that their re-finance exposed them to personal liability, and new tax liability, on the note. It would be unfair to allow a lender, or someone that has purchased a note from a lender, to pursue the borrower beyond the value of the agreed upon security.

SB 1178 is consistent with the intent of the orginal law and simply updates it for modern times. Current law was intended to ensure that if someone lost their home to foreclosure, they wouldn’t be liable for additional payment. Since the law was passed over 70 years ago, homeowners re-financing from the original loan to lower their interest rate has become commonplace. The 1930s legislature didn’t anticipate how mortgages would change over time.

Lenders could pursue families to collect this “deficiency” debt years down the road. Under current law, lenders have up ten years to collect on the additional debt after a judgment has been entered on the foreclosure. Years after a family has lost their home, they could find themselves in even more financial trouble. Lenders could even sell these accounts to aggressive collection agencies or even bundle them into securities. The end result would be banks who didn’t lend responsibly in the first place coming after families for even more money that they don’t have.

SB 1178 does NOT apply to “cash-out” re-finances, unless the money was used to improve the home and it doesn’t apply to HELOCs.

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California Foreclosure Activity Declines in Q1 2010

California Foreclosure Activity Declines Again
April 20, 2010

Lending institutions started formal foreclosure proceedings on fewer California homes last quarter. It is unclear how much of the drop can be attributed to shifts in market conditions, and how much is because of changing policies, a real estate information service reported.

A total of 81,054 Notices of Default (“NODs”) were recorded at county recorder offices during the January-to-March period. That was down 4.2 percent from 84,568 for the prior quarter, and down 40.2 percent from 135,431 in first-quarter 2009, according to San Diego-based MDA DataQuick.

The year-ago number is the highest in DataQuick’s statistics, which go back to 1992 for NODs. The quarterly average is 44,041, while the low of recent years was 12,417 in third-quarter 2004, when housing market annual appreciation rates were around 20 percent.

“Several factors are at play here and it’s hard to know how they play into each other right now. A year-and-a-half ago the subprime loan mess was the black hole. Now, playing catch-up, is the financial distress households are experiencing because of the recession. Add to the mix shifting policy decisions, both by lending institutions and in public policy,” said John Walsh, DataQuick president.

“We are seeing signs that the worst may be over in the hard-hit entry-level markets, while problems are slowly spreading to more expensive neighborhoods. We’re also seeing some lenders become more accommodating to work-outs or short sales, while others appear to be getting stricter about delinquencies. It’s very noisy out there,” Walsh said.

The state’s most affordable sub-markets, which represent 25 percent of the state’s housing stock, accounted for 47.5 percent of all default activity a year ago. In first-quarter 2010 that fell to 40.9 percent.

California’s mid- to high-end housing markets were more likely to have seen a rise in mortgage defaults last quarter, though the concentration of default activity – measured by defaults per 1,000 homes – remained relatively low in those areas.

For example, zip codes statewide with median home sale prices of $500,000-plus saw mortgage defaults buck the overall trend and rise 1.5 percent last quarter compared with the prior quarter, while year-over-year the decline was 19 percent (versus a 40.2 percent marketwide annual decrease). Collectively, these zips saw 4.5 default notices filed for every 1,000 homes in the community, compared with the overall market’s rate of 9.3 NODs for every 1,000 homes statewide.

In zip codes with medians below $500,000, mortgage default filings fell 5.8 percent from the prior quarter and declined nearly 43 percent from a year earlier. However, collectively these zips saw 10.5 NODs filed for every 1,000 homes – more than double the default rate for the zips with $500,000-plus medians.

On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the NOD. The borrowers owed a median $14,066 in back payments on a median $330,147 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $3,897 on a median $64,422 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

While many of the loans that went into default during first-quarter 2010 were originated in early 2007, the median origination month for last quarter’s defaulted loans was July 2006, the same month as during the prior four quarters.

San Diego-based MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 81,054 default notices were filed last quarter, they involved 79,457 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit). Multiple default recordings on the same home are trending down, DataQuick reported.

Following a historical pattern, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The probability was highest in Merced, Stanislaus and San Joaquin counties.

The number of Trustees Deeds (TDs) recorded, which reflect the number of houses or condo units lost to the foreclosure process, totaled 42,857 during the first quarter. That was down 16.1 percent from 51,060 for the prior quarter, and down 1.7 percent from 43,620 for first-quarter 2009. The all-time peak was 79,511 in third-quarter 2008.

In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The state’s all-time low was 637 in the second quarter of 2005, MDA DataQuick reported.

There are 8.5 million houses and condos in California.

On average, homes foreclosed on last quarter spent 7.5 months winding their way through the formal foreclosure process, beginning with an NOD. A year ago it was 6.8 months. The increase could reflect, among other things, lender backlogs and extra time needed to pursue possible loan modifications and short sales.

Foreclosure resales accounted for 42.6 percent of all California resale activity last quarter. It was up from a revised 40.6 percent the prior quarter, and down from 57.8 percent a year ago, the peak. Foreclosure resales varied significantly by county last quarter, from 13.8 percent in San Francisco to 67.7 percent in Merced.

At formal foreclosure auctions last quarter, an estimated 24.6 percent of foreclosed properties went to investors and others who do not appear to be lender or government entities. That’s up from an estimated 17.6 percent a year ago.

The lenders that originated the most loans that went into default last quarter were Countrywide (7,282), World Savings (6,459), Washington Mutual (6,371), Wells Fargo (5,204) and Bank of America (3,851). These were also the most active lenders in the second half of 2006, and their default rates were well below 10 percent.

Smaller subprime lenders had far higher default rates for that period: ResMAE Mortgage, Ownit Mortgage, Master Financial, First NLC Financial Services and Fieldstone Mortgage all had default rates of more than 65 percent of the loans they originated in the second half of 2006. These and most other subprime lenders are long gone.

Most of the loans made in 2006 are owned or serviced by institutions other than those that made the loans. The servicers pursuing the highest number of defaults last quarter were ReconTrust Co., Cal-Western Reconveyance and NDEx West, MDA DataQuick reported.

Notices of Default (first step in foreclosure process)
houses and condos

Trustees Deeds Recorded (signal homes were lost to foreclosure)
houses and condos

Source: DQNews.com (DataQuick Information Systems)

Gov. Arnold Schwarzenegger waives state taxes on mortgage debt forgiven in a foreclosure or short sale

There’s good news for thousands of California taxpayers who sell homes at a loss, a practice known as a short sale. A measure (SB 401) signed last week by Gov. Arnold Schwarzenegger waives state taxes on mortgage debt forgiven in a foreclosure or short sale.

The federal liability waiver for mortgage debt relief is still in place, but the state waiver was set to expire at the end of 2008. The new state provision applies to mortgage debt forgiven by lenders during tax years 2007 to 2012.

Without the tax shelter, the difference between the mortgage debt and sale price on a short sale becomes taxable income. So a state earner making $65,000 who sold a home at a $100,000 loss would be responsible for taxable income of $165,000.

On April 5, the Obama administration expanded the existing Home Affordable Modification Program to include new federal guidelines and incentives for lenders and qualified borrowers. The new Home Affordable Foreclosure Alternatives program helps eligible homeowners avoid foreclosure by providing options for short sales or deeds-in-lieu of foreclosure.

Borrowers are required to be owner-occupants of the principal residence, show financial hardship and have a first lien mortgage originated on or before Jan. 1, 2009 with a principal balance that does not exceed $729,750. In addition, the borrower’s total monthly mortgage payment must be greater than 31% of his or her monthly gross income.

Under the new HAFA program, borrowers can get up to $3,000 in relocation assistance. Service providers can get $1,500 for administrative and processing costs. Forgiven debt that does not exceed the debt used for acquisition, construction or rehabilitation of a principal residence is not taxed as income. (Make sure that you check these guidelines with a tax advisor or the IRS.)

If the home remains unsold despite a good-faith effort by the owner, the lender may accept a title transfer and release the borrower from the debt and further claims through a deed-in-lieu of foreclosure. For more information about HAMP programs, visit Making Home Affordable.gov or call (888) 995-4673.

Source: LA Times, Money & Company, On the Market: Short sales

Short Sales – Foreclosure: Tax implications

An important piece of the Short Sales – Foreclosure scenario that often gets overlooked are the tax implications of reduced or cancelled debt. The information and especially the links to the IRS website are a must read for anyone contemplating a distressed sale or loan modification.

As always, be sure to contact an accountant or attorney to verify that you understand completely what liability, if any you will have upon successfully selling or modifying.


Home Foreclosure and Debt Cancellation
Information provided by the Law Office of Gregory T. Royston

Update Dec. 11, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

The amount excluded reduces the taxpayer’s cost basis in the home. More details

Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.

1. What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situation where cancellation of debt is not taxable as income involve:

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.

3. I lost my home through foreclosure. Are there tax consequences?

There are two possible consequences you must consider:

Taxable cancellation of debt income (Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans).

A reportable gain from the disposition of the home, because foreclosures are treated like sales for tax purposes.(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income).

4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?

No. Losses from the sale or foreclosure of personal property are not deductible.

5. Can you provide examples?

A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.

6. I don’t agree with the information on the Form 1099-C. What should I do?

Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.

7. I received a notice from the IRS on this. What should I do?

The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.

8. Where else can I go to get tax help?

If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.

In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.

Related Items:

Publication 523: Selling Your Home
Publication 544: Sales and Other Dispositions of Assets
Publication 908: Bankruptcy Tax Guide
Form 1040: U.S. Individual Income Tax Return
Form 1040: Schedule D, Capital Gains and Losses
Form 1099-C: Cancellation of Debt
Form 9465: Installment Agreement Request

All good things…

I received my Weekly Mortgage Market Update today from Victor Samaan, our Bank of America rep and as anticipated the threat of higher interest rates on home loans could be just around the corner. It’s been my contention that one of the best reasons to buy now, even with the specter of further devaluation in coming months is interest rates. How much would a point add to your payment?

“ALL GOOD THINGS MUST COME TO AN END…”

Or so the popular saying goes. And last week, the Fed reiterated once again that their Mortgage Backed Security (MBS) purchase program…the program that has helped keep home loan rates low for much of the last year…will end on March 31, 2010 as previously stated. Here’s the lowdown on what this means, and all the latest news impacting home loan rates and the markets.

Last Wednesday during their regularly scheduled meeting of the Federal Open Market Committee, the Federal Reserve kept the Fed Funds Rate unchanged. But history has shown that when the Fed has left rates too low for an extended period of time, there is a price to be paid, via higher inflation. Yet if the accommodation is removed too early, it can derail an already fragile recovery. The Fed continues to walk this tightrope, trying to get it “just right.”

Along with this decision, the Fed emphasized and reminded that their MBS purchase program will still end on their already revised deadline date of March 31, 2010. Why is this significant? Let’s look at the numbers from last week to get an idea. The Fed purchased $16B in MBS in the latest week bringing the year-to-date total to $1.087T. This means there is $163B left to purchase before March 31, which in turn means the Fed will purchase about $11.5B on average each week through the end of the buying program. This is less than half of what the Fed was buying regularly throughout 2009 and a 1/3 less than what the Fed has been buying in recent weeks.

So why does this point to higher rates around the corner? When there is lots of supply and diminishing demand, the price of that item will subsequently go down – it’s Economics 101. So, when Bond prices start to decrease from the diminishing demand of the Fed’s purchases, home loan rates will naturally be likely to increase.

Source: Victor Samaan at Bank of America

Citigroup to suspend foreclosures/evictions for holiday season

I’m not sure exactly how I want to position this… and as much as I want to be professional and not have an opinion, walk the fence (so-to-speak) I can’t help myself on this one.

OK so Citibank is saying “why don’t you folks take an additional 30 days because we’re not going to do anything with your home for the next 30 days anyway and really there are way too many functions on our schedule to sign all the docs until mid January.” The truth is that tens of THOUSANDS of REOs are sitting vacant and will be indefinitely. Much of this inventory is not even being marketed!

Citibank says it’s working on an alternative to foreclosure, so why not work on an alternative to evicting these owners, mid winter 30 days from now? In reality this is a drop in the bucket… The numbers of foreclosures reported in the third quarter were more than 900,000 and that is approximately 23% higher than a year ago. See map at Where Foreclosures Cluster.

Considering the magnitude of this crisis, for an organization the size of Citibank to do a press release about this weak concession is nothing but a publicity stunt to garner “good will” during the holidays. I’m embarrassed for them and ashamed that MSNBC posted it (seriously)… Can I get a WHOOP-DEE DOO!?

Citigroup to suspend foreclosures for 30 days
Bank is working on ‘long-term fundamental alternatives’ to foreclosure

WASHINGTON – Citigroup Inc. will suspend foreclosures and evictions for 30 days in a temporary break for about 4,000 borrowers during the holiday season.

The New York-based bank said Thursday the suspension will run from Friday through Jan. 17. It applies only to borrowers whose loans are owned by Citi. Borrowers who make payments to Citi but whose loans are owned by other investors are out of luck.

“We want our borrowers to have a much less stressful time, to spend their time with their families during the holidays as opposed to worrying about their homes,” Sanjiv Das, head of the company’s mortgage division, said in an interview.

The suspension means Citi will halt foreclosure sales and stop evicting homeowners from properties it has already seized. The company projects it will help 2,000 homeowners with scheduled foreclosure sales and another 2,000 that were due to receive foreclosure notices.

Das also said the company is working on “some long-term fundamental alternatives” to foreclosure, but declined to be specific. “We know that moratoriums are not permanent solutions,” he said.

Most major lenders suspended foreclosures last winter while the Obama administration developed its $75 billion loan modification program. Foreclosures picked up again after those suspensions lifted. In recent months, they have fallen as banks evaluate whether borrowers qualify for the government program.

Citi has enrolled about 100,000 borrowers in the Obama program, but had made only about 270 of those modifications permanent as of the end of last month, according to a Treasury Department report. But Das said the low number resulted from a “reporting error” and said it will rise dramatically by year-end.

“I have put a lot of pressure on my team to make sure that there is almost nothing left in the pipeline,” he said.

Short-Sale standards could help troubled homeowners

Bravo! Standardizing the short sale process is a fantastic move…

What’s missing from this proposal is requiring that agents be qualified to work in the Short Sale arena. These transactions are much more problematic and time consuming then a standard sale and require an entirely new skill set.

There are agents, with short sale listing who probably shouldn’t have a real estate license and yet they are representing owners in dire straits, where time is of the essence and they (the agent) are all that stands between a successful short sale and foreclosure.

When one or the other is the only option, there’s a big difference. The credit score hit alone is at least a couple hundred points higher, foreclosure verses short sale and a foreclosure stays on your record for a minimum of 7 years verses just a couple with a short sale. There are other issues as well.

If you’ve followed the content I’ve posted recently, you’ll probably agree that we need to assure that more of this “pre-foreclosure” property is successfully marketed. Perhaps the holders of these second liens will need to decide between $3,000 guarantee and the prospect of pursuing more money, over time by legal means. We all know who end up with the lion share in that scenario.

In the end, if we can cut the number of foreclosures then it’s a win. The banks do not need more property and the short sale process needs to be less of a hassle with a higher rate of success. As someone focusing more and more on short sales, parameters and timeline are welcomed.

Obama’s standardized short-sale plan could help troubled homeowners

The Los Angeles Times
By Kenneth R. Harney
December 13, 2009

Reporting from Washington – If you’re in trouble on your mortgage and can’t get a loan modification, check out the Obama administration’s standardized short-sale plan that’s scheduled to roll out in the next several months.

The program, outlined Dec. 1 by the Treasury Department, is an attempt to streamline what has traditionally been a contentious, time-consuming process by requiring lenders and others to use nationally uniform documents, timelines and financial incentives.

A short sale involves a lender or investor agreeing to collect less than the balance owed on a mortgage debt out of the proceeds of a negotiated sale of the property. Often a short sale is the last alternative to foreclosure available to distressed homeowners and banks. Say you’ve lost your job and fallen behind on mortgage payments. With little or no income, you can’t qualify for a modification program.

In this situation — grim as it is — your best move may be to see whether your lender will accept a short sale. Though the idea sounds straightforward, in practice it is not. First, the bank needs to be convinced that a short sale would yield it more money at the bottom line than a foreclosure would.

This usually means you need to bring in a real estate agent who knows the ropes and can pull together the key information needed by the bank: recent comparables on closed sales, local market trends and the likely selling price of your house.

You’ll also need a buyer for the house — one who’ll pay a price acceptable to the bank and has financing to close the deal. If you happen to have a second mortgage or home equity credit line on the property, you’ll also need to negotiate how much that lender will receive from the sale proceeds.

That can be tricky. In depressed real estate markets, the second-lien lender may be holding a note that’s worthless in a foreclosure because plummeting property values have wiped out the collateral. Yet that same bank is in a pivotal position: It has the legal power to block the short sale by refusing to sign on to the deal.

Equally troublesome in short sales is the fact that banks, mortgage servicers and bond investors often have conflicting requirements for documentation and financial yields that can complicate and drag out the haggling for months.

Enter the Obama administration’s new streamlining plan. Besides requiring lenders and servicers to use uniform documentation, pre-approved short-sale terms and accelerated turnaround times, the plan provides financial incentives for key players:

* Homeowners who successfully complete a short sale under the program receive $1,500 to defray relocation costs.

* Mortgage servicers can receive $1,000 per case.

* Investors get $1,000.

* Second-lien holders receive up to $3,000 from the sale proceeds.

Even real estate agents get something: The rules prohibit banks from forcing them to cut their commissions from the listing agreement as part of the final deal.

Sounds like a formula for encouraging a lot more short sales, right? The jury will be out on that for months, and most major lenders are still studying the fine print of the Obama program. But early reactions from big banks appear to be positive.

Dave Sunlin, a senior vice president for Bank of America Corp., said: “We’re very pleased. We welcome any effort to reach standardization for all parties” involved in short sales.

Faith Schwartz, executive director of Hope Now — a Washington-based group representing the country’s largest banks, mortgage servicers, bond investors and consumer counseling organizations — said the plan should bring “uniformity and standards” to a process usually characterized by “mayhem” among the negotiating parties.

Scott Brinkley, a senior vice president for First American Corp., a firm that provides market data for banks, said, “You’re going to see a lot of cooperation” by lenders and investors.

But there could be a major pothole: The Obama plan tilts to consumers by requiring second-lien holders to drop all financial claims against short-selling borrowers beyond the $3,000 they take out of the deal.

Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a Scottsdale, Ariz., consulting firm, says the $3,000 payment won’t be enough for many second-mortgage lenders. Today they frequently obtain additional short-sale compensation from sellers as the price of their participation — in cash or through promissory notes — far beyond $3,000.

“I’m concerned that that could limit participation” by second-lien holders, Olsen said.

Bottom line for homeowners who might benefit: Don’t have wild expectations, but definitely ask your servicer whether it plans to participate and whether the forthcoming standardized plan for short sales might work for you.

Source: Los Angeles Times