Everyone knows that the government doesn't like to lose money, and now the Federal Housing Association (FHA) has upped the ante for lenders that do not engage in loss mitigation efforts. The U.S. Housing and Urban Development (HUD) Department recently announced a program to reward lenders for trying harder to recoup their losses before declaring a loan in default.

Previously, HUD was able to assess fines up to $1.25 million per year against a lender that did not utilize mitigation programs. Now, these fines are uncapped, and the lenders can be assessed additional damages up to TRIPLE THE AMOUNT of any FHA mortgage insurance benefit claimed by the lender!

However, this dramatic step is coupled with a dramatic reward: lenders can claim additional benefits if they can show they've followed all suggested procedures.

Either way, this is great news for short-sale investors, because it makes it very worthwhile for a bank or lender to listen to your offer. The FHA?s loss mitigation program lists pre-foreclosure sales as one of five options that lenders have the authority and responsibility to investigate when working with homeowners in financial difficulties with their mortgage.

This new policy came into effect in Summer of 2006.

"Short Sales: A SAFE PLACE To Be During The Coming Real Estate Blood-Bath"

Let's face it: Nobody can predict the future of real estate prices, but many people agree that parts of the United States are due for some significant price declines after the irrational appreciation of the late 90's and early 2000's. Indeed, this has already begun to happen in some of the areas of the United States.
Additionally, mortgage lending guidelines have been so profoundly lax in recent years that many borrowers who were unqualified by any reasonable lending standard have acquired variable rate mortgages that they could pay while rates were low, but as interest rates rise, those variable rate mortgages are now returning to "bite" these unqualified buyers.

Where does this leave short sellers? In a very nice position.

You see, as property values decline and mortgage foreclosures increase, lenders are going to be under significant pressure to relieve their inventories of bad loans in order to get their money re-circulated into performing assets (non-defaulted loans).

As you probably know, mortgage foreclosures are at historically high levels already. And as more geographical regions of the United States begin to experience severe price contractions in the real estate market, lenders will be more and more open to alternative solutions to relieve their immediate stress...

...and short sales will be a common solution to their problem.

Frankly, the situation that seems to be developing in the real estate market is reminiscent of the real estate collapse for which the U.S. government created the Resolution Trust Corporation. The Savings & Loan crisis of the 80's left such a huge supply of non-performing mortgage loans that the US Government had to step in and assist with the disposition of those non-performing assets to other entities that could handle them. And that's when savvy real estate investors made a fortune.

Investors were able to benefit by purchasing property directly from the RTC at severely reduced prices - a type of short sale for that time period. And as market conditions in various parts of the country return to similar circumstances that prompted the formation of the RTC, savvy investors will have increasing opportunities to buy real estate at extraordinarily reduced prices through short sales.

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