Fannie Mae Supports Short Sales

With over 5 million US homeowners presently delinquent on their loans and at risk of foreclosure, the US government is eager to tackle the problem. With an already sluggish economy and falling housing market, further foreclosures would have a adverse impact while what is really needed is stability. The government has tried a couple of incentives to stimulate the housing market, but none have been especially successful so far.

One of these incentives was the first time buyer tax credit which was intended to encourage potential buyers to make a purchase by providing tax credits. During this period sales surged and at first it appeared as though the housing market was on the up again. The positive outlook was short lived however and once the period was over the market began dropping again. As opposed to truly encouraging prospective house owners to make the decision to go ahead whereas they might otherwise have decided against it, it turned out that the tax credit period just encouraged those who were going to purchase anyway to bring forward their decision from later in the year. This means that while first time home buyer tax credit period would have given a boost to the market, the boost was short-lived and made very little to no difference on the whole. Some even feel that it's detrimental since it provides false figures and prevents the market from naturally correcting itself.

Another attempt was the Home Affordable Modification Program (HAMP). Intended to assist house owners who are struggling to keep their houses by adjusting their monthly re-payments to affordable levels, HAMP hasn’t been as successful as it was once hoped to be. Much of the reason for this is that it assists far lesser individuals than it had been expected to due to the requirements needed to be eligible for the program. It was also found that even after qualifying for the program, many house owners could still not keep up with their monthly payments. It was hoped that HAMP would help the market by avoiding a large number of foreclosures however it seems as though they have to go back to the planning stage with the program if it should work.

With other programs not living up to their expectations, Fannie Mae is now putting their weight behind short sales. A short sale is when a lender agrees to the sale of a property at a price which doesn’t cover the outstanding loan amount. This means that the lender is accepting a hit financially however it could still be beneficial to them when considering the time and cost involved in a foreclosure. Fannie Mae is now giving cash incentives to servicers if they comply with a short sale. They're also giving cash incentives to home owners if they comply with selling their home at a lesser amount.

This assists the market in general since properties made vacant by foreclosures add to the inventory of vacant properties, reducing the value of the home market. It can also be beneficial to the home owner over going into foreclosure since in addition to the cash incentive, it has less of an effect on their credit rating.

With HAMP and the first time buyer tax credit incentives failing to achieve what was hoped of them, Fannie Mae is currently looking at short sales as a way to avoid too much further decline in the housing market so that it can begin recovery sooner rather than later.
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