Chicago Foreclosure Lawyer Blog

NPR has an interesting article about what other factors may be affecting the housing market. Although the article tends to over-simplify a complex issue, I found it to be a worthwhile read.

Some research indicates that people are less likely to sell their homes when they perceive a loss as a result. Human beings tend to fear losing, which is likely an old instinctual response from when losing meant death. It turns out that our brains do not evenly weigh winning and losing. The high from winning has less impact than the low from losing.

As one of my colleagues points out, the article tends to ignore the deeper, more complex issues involved in the stagnation of the housing economy. For instance, those home owners who are deeply underwater may be unable to sell their homes because they cannot get their lenders to approve a short sale at such a deep discount.

It also ignores the effect of shadow inventory -- those empty, bank-owned properties waiting in the wings. So long as we have lots of surplus housing inventory, I think we can count on market and psychological factors alike to stymie a meaningful recovery.

The New York Times is reporting that a new Federal program seeks to provide new incentives for borrowers and lenders to resolve distressed mortgages via short sale. The new program, scheduled to take effect on April 4, will provide cash incentives to increase the number of successful short sales.

In a normal short sale, banks allow borrowers to sell their home for less than is owed on the mortgage. In some situations, borrowers are still on the hook for the remainder of the loan's balance. The new Federal program would absolve the borrowers of that deficiency. It would also provide cash payouts to lenders and borrowers.

One key element that may actually make this program work is that lenders will have realtors assess the value of the properties and then be forced to accept an offer that comes in at or over the assessed value. This is a large step forward from the current system where lenders will reject a short sale offer if they subjectively feel that the offer is "too low."

Only time will tell if this is going to be more or less successful than the HAMP loan modification program. At very least, it should keep a few REO properties off of lenders' books.