The Obama administration has released long-awaited guidelines for a program that will provide incentives for loan servicers and homeowners to engage in short sales when borrowers who are eligible for the Home Affordable Modification Program (HAMP) don’t qualify for a loan mod.

The guidelines prohibit loan servicers from demanding that real estate brokerages reduce the commission stated in the listing agreement as a condition of approving a short sale — a practice that’s been a sore point with many real estate agents. 

Troubled borrowers interested in exploring a short sale will also be allowed to receive preapproved short-sale terms prior to the property listing, and servicers must agree to fully release them from future liability if the sale goes through.

The incentive program, which includes payments to second-lien holders who often stand in the way of short sales, was announced in May, but issuance of the guidelines was stalled over legal concerns.

Troubled borrowers who agree to a short sale or deed-in-lieu of foreclosure will receive up to $1,500 to assist with their relocation expenses. Loan servicers and investors who sign off on payments to subordinate lien holders will earn up to $1,000 for successfully completing a short sale or deed-in-lieu.

Subordinate lien holders are limited to recovering no more than $3,000 from sale proceeds, although those who object to the cap can engage in short sales outside the program.

Jeff Lischer, the National Association of Realtors’ managing director of regulatory policy, told the groups’ members last month at their annual conference in San Diego that the incentives should make a difference but won’t be a cure-all for foreclosures.

Separately on Monday, Treasury and the Department of Housing and Urban Development (HUD) kicked off a program intended to help convert as many of the 375,000 borrowers who have received trial loan modifications into permanent ones (see story).

In order to "hold (loan) servicers accountable for their commitment to the program," they will be required to submit schedules for making a decision on each HAMP-eligible loan. Servicers failing to meet performance obligations under a servicer participation agreement may be subject to monetary penalties and sanctions, the Treasury Department said in announcing that initiative.

The initiative also offers new Web tools for borrowers, including links to all of the required documents and an income verification checklist to help borrowers request a modification in four easy steps.

Some economists and housing analysts have warned that lenders’ foreclosure prevention efforts aren’t keeping pace with deteriorating loan performance. …CONTINUED

An industry coalition of mortgage servicers and investors, HOPE NOW, says its members have provided 2.1 million loan workouts in the first eight months of 2009. While nearly half of homeowners entering the foreclosure process in in 2007 ended up losing their homes, only about one in three do today, the group said.

But the number of homes in foreclosure or headed there continues to grow. A record 14.1 percent of homes with mortgages were at least one payment behind or in foreclosure at the end of September, according to the latest numbers from the Mortgage Bankers Association.

Nearly one in 10 loans outstanding on one- to four-unit residential properties — a seasonally adjusted 9.64 percent — were delinquent, up from 9.24 percent at the end of June and 6.99 percent a year ago.

Another 4.47 percent of outstanding loans were in the foreclosure process, up from 4.3 percent at the end of June and 2.97 percent a year ago.

MBA Chief Economist Jay Brinkmann said delinquencies and foreclosures continue to rise despite the recession having ended in mid-summer, "because mortgages are paid with paychecks, not percentage-point increases in (gross domestic product)," and unemployment remains high.

Over the last year, the ranks of the unemployed have increased by about 5.5 million people, Brinkmann said, increasing the number of seriously delinquent loans by almost 2 million.

Prime, fixed-rate loans accounted for the largest share of foreclosures starts and were the biggest driver of the increase in foreclosures, Brinkmann said. One in three foreclosures started in the third quarter were on prime fixed-rate loans, and those loans accounted for 44 percent of the quarterly increase in foreclosures, he said.

The foreclosure numbers for prime fixed-rate loans will get worse, he said, because they also represent most of the recent increase in loans 90 days or more past due, but not yet in foreclosure.

More than 4 million loans were in foreclosure at the end of September or "seriously delinquent" — more than 90 days past due, the MBA said. That’s slightly more than the total number of homes currently on the market, although there’s some overlap between the numbers.

Brinkmann said he expects delinquency and foreclosure rates will continue to worsen before they improve. It’s unlikely the economy will begin adding jobs until sometime next year, he said, and then only at a very slow pace.

When the economy does begin to add more jobs, those jobs probably won’t be in regions of the country with the biggest excess housing inventory and the highest delinquency rates, Brinkmann said.


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