New Foreclosure Alternatives Program

Today, the Obama Administration announced the Foreclosure Alternatives Program to help homeowners avoid foreclosure. This program is for homeowners that do not meet the refinance or mortgage modification programs available on Making Home Affordable Loan Modification Program. Basically it is for homeowners who can no longer afford their homes. This program will not help homeowners stay in their homes but it will allow a homeowner to avoid foreclosure. Why is this important? Because a foreclosure on a homeowner's credit report will make it more difficult to purchase another home in the future.

One of the more important details is that the lender will be required to give the homeowner 90 days (in some cases more time) to market and sell a home. As any Realtor who has done short sales knows, the banks are often the most difficult impediment to accomplishing the short sale. This program gives monetary incentives to servicers, first lenders and second lenders. It also gives the homeowner funds for moving.

The other option in this program is encouraging deeds in lieu of foreclosure if the short sale does not work. I am not sure that this will really affect anything. Lenders do not like deeds in lieu because it does not give them the protection from liens that foreclosures do (at least in California - this may different in other states). Also, I am not sure a deed in lieu looks better on your credit report than a foreclosure. Hopefully there will be more guidance on this in the near future.