Washington D.C. is making way for short sales

As Washington D.C. keeps realizing, nothing it does so far seems to really take the big bite out of the mortgage crisis. Negative equity, defaults and unemployment are still with us. 
 
So now the federal government is turning its hopes to short sales. Those are where the lender takes a sales price below what it's owed to avoid foreclosing. It gives the seller a more graceful exit than foreclosure and is proving a sort of back door way of writing down principal. They're already big in Sacramento: nearly one in four January sales were short sales, according to the Sacramento Association of Realtors.

April 5 is the big rollout of the Obama Administration's Home Affordable Foreclosure Alternatives. There are incentives to lenders and borrowers to make more of these happen. Many questions can be answered in the Treasury Department fact sheet link just above.

One of the big obstacles is the holders of second-lien loans. They're balking at having to absorb their loss  and making it harder for the first-lien holder to do the short sale. House Financial Services Committee Chair Barney Frank recently sent a letter to big banks telling them to get out of the way and write off these "seconds"

If you are looking for a good overview of the newest regulatory dance over short sales and second-lien loans? This Wall Street Journal piece explains it well.

Written by Jim Wasserman - SacBee