There’s always something to howl about.

Obama’s Short Sale Program could put downward pressure on home prices

Mr. Obama’s latest program for the foreclosure crisis attempts to stabilize the market in a different way than his previous attempts.  Before, the feds tried to keep people in their homes by negotiating reduced payments through loan modifications.  Few people were able to use the programs and of those that did the rate of default recidivism was 50% within six months.  The “new” approach is to help those in trouble get out of their homes by streamlining the short sale process and adding requirements that will force banks to accept many more short sales.  Basically, the feds will pay owners to sell at a loss and give them a little cash in the process.

Starting April 5th, hundreds of thousands of delinquent borrowers will be encouraged to sell their homes through this process.  Since the basic laws of economics still apply, that flood of inventory at fire sale prices will create heavy downward pressure on other homes in their markets.  Prices should fall.

That’s just one problem with this approach.  The Home Buyer’s Tax Credit was already a magnet for fraudulent filings. The government mandated short sale process could be even worse.

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it. – MSN

With the high regard that the public holds for real estate agents, they should be a pinnacle of integrity when it comes to setting values for lenders.  Or, could that be a problem?  I’ve found that real estate agents offer different values, at times in spite of the comparables, to suit their desired outcome to get a listing. Also, there is rarely enough information on comparable properties, particularly in a small market like Lake Chelan, to make a realtor’s Comparative Market Analysis statistically meaningful (for those the agents that understand statistics) making the estimate, at best, a hopefully educated guess.  How much of your tax money do you want to see spent this way?

For responsible home owners who might be looking to sell if this new program actually attracts sellers, you could be facing sales competition from subsidized homeowners in as little time as one month.