U.S. 'Short Sale' Plan to Aid Underwater Homeowners

May 14, 2009
WASHINGTON, D.C.— -- The Obama administration announced today new measures to help Americans avoid foreclosures.

Treasury Secretary Tim Geithner unveiled plans to help borrowers sell their homes for less than what they owe -- known as "short sales" -- by providing incentives for more lenders to accept such sales. Borrowers could also give their homes to lenders to get rid of a delinquent loan, another way to prevent foreclosure proceedings.

"As unemployment rises and as Americans still face a deep and challenging set of problems, you're seeing the rate of distress still growing in this country and that's why it's so important that we do everything we can to try to get assistance to people who need it," Geithner said Tuesday at the National Community Reinvestment Coalition in Washington.

The administration also announced a $10 billion insurance plan to protect lenders from losses stemming from the drop in home prices.

The new efforts are aimed at helping those who otherwise hadn't qualified for the administration's Making Home Affordable program.

The $50 billion mortgage aid program, launched almost three months ago, has been criticized for taking too long to start and not helping enough homeowners. But today Geithner and Housing and Urban Development Secretary Shaun Donovan emphasized that a great deal of progress has already been made, noting that 55,000 modification offers have been sent to qualifying homeowners.

"We're seeing the first signs of homeowners being able to take advantage of lower monthly payments that the program makes possible," Geithner said.

"The country's been in the recession for a long time and people want to see progress quickly," he noted. "And we are seeing a lot of progress in a very short period of time."

The Treasury chief said that refinancing applications have surged nationwide since the program was announced and are up 70 percent since President Obama outlined the plan.

Donovan echoed the sentiment.

"We have already seen more than a million families benefit from refinancing since the plan was announced," he said. "...I think we're ahead of any prior efforts at this point."

Accompanying Geithner and Donovan were two homeowners participating in loan modifications, including Warren Rohn, of Lewiston, Calif., who had to close his trucking business last year.

Thanks to the government program, Rohn was able to avoid foreclosure and modify his loan with Wells Fargo to 2 percent for the next five years, he said.

"Let me put it simply – well, this program saved my bacon, I don't know how else to put it," Rohn said with a laugh.

His wife, stricken with cancer, had a lung removed just three weeks ago, but the housing help has relieved at least one concern hanging over his head.

"The program works – it's made a real difference in my life and it's given me and my wife the security to know that we will have a home," he said.

Discouraging Housing News

The update comes just the day after some discouraging housing news shook hopes of an economic recovery and dragged down stocks on Wall Street. Foreclosures in the United States spiked 32 percent in April compared with a year ago, with more than 342,000 American households receiving at least one foreclosure notice, according to RealtyTrac, a California-based foreclosure research firm.

Nevada had the nation's highest foreclosure rate, with 1 in every 68 homes in foreclosure.

RealtyTrac said the steep jump in foreclosures may be due to the fact that legislative and industry moratoriums on foreclosures have been expiring, freeing many lenders and mortgage servicers to start once-delayed foreclosure proceedings.

With reports from ABC News' Alice Gomstyn.