Government offers incentives to ease short sale process

The government launched a new effort Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it's worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale - known as a short sale - or agree to turn over the deed of the property to the lender. It's designed for homeowners who are in financial trouble but don't qualify for the administration's $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn't hurt a borrower's credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure, and the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.

The expanded incentives will help accelerate short sales, said Mark Zandi, chief economist at Moody's Analytics. He expects 350,000 homeowners nationwide to use the program through the end of 2012, more than double his earlier forecast.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That's a big change from current practice. Lenders generally don't calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

Under the new process, buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months.

However, there are plenty of restrictions. To qualify, the home needs to be a borrower's primary residence. Homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, although the two government-controlled companies will soon follow suit, said the Treasury's Maggiano.