THE PROBLEM: Over the last few years, Americans have been made aware of what the words "Housing Crises" means.  All over the United States, due to the sagging economy, coupled with poorly regulated lending policies, homeowners are discovering that what they supposed their home's value to be is no longer correct. 

In the past, the American dream of purchasing a house, staying in it for a while, then selling it and using it's increased equity to move up to the next level of ownership was a realistic and reasonable expectation.  The simple fact is that, for quite a while now, this has been unattainable for a disturbing segment of the Oakland-East Bay homeowners. 

Complicating this issue are the huge amount of regulations and rulings at the Federal level which have never really caught up with the lending policies and needs of the huge variety of lenders who are involved in their own financial crises. 

The core issue is to find a way to deal with the fact that owners no longer wants to live in a home that is often currently valued tens of thousands of dollars less than the mortgage on that home.  It is not uncommon in many areas of the San Francisco Bay region for an originating loan to have been $429,000 on a home that is now currently worth $275,000.

This problem is futher complicated by the fact that, due to the downsized economy, one, or often both, of the breadwinners in the family are either out of work, or living on a reduced income.  They are faced with the need to keep making payments on what has now become, for them, a desperately overpriced home. 


The government's attempt to solve the problem affecting both the banks and the homeowners was the "Short Sale".  It was called the " Home Affordable Foreclosure Alternative" or "HAFA".  It's purpose was twofold:

a. The homeowner places the home on the market.  When a buyer presents an offer, and the homeowner accepts,  the bank and the buyer will negotiate as to price that is acceptable to both.  Sometimes this takes quite a while, and many potential buyers lose interest, thus negating the potential sale. 

b. The bank understands that it is taking a loss on its investment, but it is a better choice to sell the house than having it sit around empty, which is often the case as desperate homeowners walk away from homes they can no longer pay for, or stop paying their mortgage altogether. 

 The proposed solution has not been effective since its inception.  Banks were exceedingly reluctant to take any form of loss, and often kept buyers waiting months on end, asking for paperwork over and over, requesting new forms be filled out, etc..  Desperate homeowners had fewer and fewer options to solve their problems.

In Part 2-We will review the new Short Sale plan that has just come into effect this month.

Posted by Bruce Wagg on


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