STEVE INSKEEP, Host:
NPR's Chris Arnold reports.
CHRIS ARNOLD: On a busy street in Boston's Dorchester neighborhood, real estate agent Curtis Howe is walking up to a brick townhouse.
M: The property was rehabbed about 10 years ago. So the inside wasn't in bad condition.
ARNOLD: But this is a part of town where properties got way overvalued during the housing bubble - way overvalued.
M: The outstanding mortgage was 545,000 or 540, somewhere around that number, and the property eventually sold for 275.
ARNOLD: The lenders who were on the hook for that loan lost a ton of money. In this case, Howe sold the house through what's called a short sale. Basically, what that means is that the bank agrees to sell the house at the current market value without foreclosing, and the owner could just walk away. The bank forgives the rest of what they owe.
M: But to explain why that's a better deal: When a property goes into foreclosure and it becomes vacant, most cases, it's vandalized. You have plumbing issues if the property isn't winterized. There's no one to maintain the property. The eventual sales value is a lot lower than a short sale.
ARNOLD: So the bank could get even less if they went to foreclosure.
M: Most cases, without question, that's the result.
ARNOLD: How long did it take to get the sale to go through?
M: It's a long process. It was just a little less than two years to get short sale approval and sale.
M: There've been many, many delays and lots of complications with the short-sale process.
ARNOLD: Laurie Maggiano is a director of policy at the Treasury Department. She says that starting today, the government is launching a new effort to grease the gears to get more short sales to happen. They'll be paying homeowners $3,000 to help motivate them and give them some money to start renting when they move out. Lenders can get up to $2,000 as an incentive. Now, some people don't like the idea of more bailouts, for banks or for homeowners, some of whom just bought houses that were way beyond their means.
M: We're not here to make moral judgments about borrowers. We are here to stabilize the mortgage market, and the major cause of default and foreclosure right now is unemployment.
ARNOLD: One of the big obstacles to short sales is that often, the homeowner doesn't have just one loan to deal with. They have a second loan, too - say, a home- equity loan.
INSKEEP: A major problem is the second mortgage holder.
ARNOLD: Nicolas Retsinas is a housing economist at Harvard Business School. He explains that banks that made these home-equity loans have to sign off to OK a short sale. And so they can end up squabbling with the first mortgage holder over who should get how much money, and that's one of the things that can just drag on and on.
INSKEEP: They can try to sort of capture and convert their power to sign off into some kind of modest payoff for that second mortgage.
ARNOLD: John Jelavich is a vice president with PMI Mortgage Insurance Co. He's been talking about the new program with lots of executives at banks and companies that manage home loans.
M: And it's still a bit up in the air in terms of their view on how big this program is. You know, we're just going to have to get into the summer months to really see how this takes off. It could be big, but it could be that it's just another program out there.
ARNOLD: Chris Arnold, NPR News.
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