New Obama Treasury Department program PAYS homeowners to avoid foreclosure..and do a short sale. In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration's most aggressive attempts to grapple with a problem that has defied solutions. Will this open another can of worms? I think it would.The administration is not understanding that paying the homeowner $1500 for help with relocation costs opens us to more fraud. The banks are not that motivated on short sales. We all know the scenario with the infamous One West story.Giving the second lien holders a $1000 incentive to release the lien- really???

More than five million households are behind on their mortgages and risk foreclosure. The government's $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done. Rather than giving TARP to banks, we could have stopped the systemic bleeding by giving a principal reduction to homeowners right at the onset.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy's tentative recovery - the last thing it wants in an election year.Taking effect on April 5, the HAFA program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a short sale. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. A lot of the lenders have signed up but my skepticism comes into play because the lenders were mandated to the HAMP program too but it has proved to be a failure.

Part of the new HAFA program is that the lenders CAN'T Go after deficiency judgments. And....they can NO LONGER request that the seller sign a promissory note...or cash at closing. A massive shift will take place April 5th once the new HAFA Guidelines are in place. I really think the government needed to mandate for the states to conform to the debt relief act. California does not conform and a seller will be responsible to pay the state taxes fo debt relief. Then comes the issue of insolvency and with the rise in strategic defaults, how are the homeowners going to protect themselves from paying these state taxes?

"We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender," said Seth Wheeler, a Treasury senior adviser. Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in "relocation assistance."

Should the incentives prove successful, the short sales program could have multiple benefits. But the biggest question in my mind is that will this be a successful program or would it fail like HAMP.. For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender's assurance that they will not later be sued for an unpaid mortgage balance.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.I am looking forward to see how proactive the lenders will be on this mandate or will they find another escape hatch..