Q: For a couple of years now, the federal government has been running programs to help people with distressed mortgages. But are those programs working? Vince Valvo, editor of The Commercial Record, says the results don’t look good.
A: Early last year, the government created a program to help people get relief from mortgages they can’t afford any longer. They would pay lenders to modify the mortgages to more affordable levels. And just a few months ago, another program was created to help homeowners sell their homes, in what’s called a "short sale."
Q: Are either of those working well?
A: Not really. The first program, called HAMP, has denied eligibility to almost 60 percent of the people who applied to it. It is supposed to help more than 4 million homeowners. But so far, only about 400,000 people have gotten mortgage relief under it.
Q: What about the Short Sales program?
A: That started in April. It’s called HAFA. It’s designed to give lenders a bonus if they allow a distressed homeowner to sell the house for less than the mortgage. Almost none of those have happened.
Q: Why not?
A: We’ve talked to real estate professionals across Connecticut. They’re almost unanimous. The process is so convoluted, so confusing, that no one really knows what the rules are. And that means that a lot of requests are getting rejected.
Q: Is that what’s also happening with the first initiative?
A: Yes. These are very complex issues, and they mean lenders have to give up big chunks of money. The people handling mortgages aren’t anxious to do that, so they’re not motivated to clear up the confusion. They lose paperwork, they start legal action while people are in the middle of getting their loan modified. It’s not a pretty picture.
Q: So what’s the take-away here?
A: If you’re a distressed borrower, it’s not likely you’re going to actually get government help. And if you’re a buyer negotiating with someone who needs government approval to make a Short Sale happen, you might want to start looking elsewhere for a different home.