The Treasury Department is giving lenders a new 10-day deadline for responding to short sale offers, in an attempt to move along a process that can drag on for months as banks decide whether to approve deals. The new rules stand to benefit underwater homeowners, many of whom have seen their buyers walk away in frustration amid delays, though some real estate agents have expressed doubt that the guidelines will be enforced. Lenders, for their part, are concerned that 10 days won’t be enough time to respond to offers. The new Treasury rules also provide financial incentives that encourage short sales: sellers will receive $1,500 in moving allowances and won’t be responsible for repaying their remaining debt, and lenders will receive $1,000 subsidies to cover the administrative costs for each sale. Investors that own the underwater mortgages can get as much as $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to subordinated lenders. [Sun Sentinel]

After an $18.9 billion loss in the third quarter, Fannie Mae plans to dip into an emergency Treasury Department fund for the fourth time this year, the Securities and Exchange Commission said yesterday. On top of the $44.9 billion the government-sponsored mortgage giant has already received in emergency financing, the company will ask for an additional $15 billion. The company says it does not foresee a quick end to its losses, and many believe this will not be the last time Fannie Mae will need to be bailed out. Ultimately, Fannie Mae will likely rack up $200 billion in emergency government funds, said Paul Miller, an analyst at Arlington, Va.-based FBR Capital Markets. Shares of Fannie Mae closed at $1.12 yesterday. They peaked at $87.81 in December 2000.

Rising unemployment is causing the foreclosure crisis, which started
with the relatively small subprime market, to expand to prime
borrowers. That’s a much larger pool of homeowners, a sign that
foreclosure rate — more than 6,600 home foreclosure filings per day,
according to the Center for Responsible Lending — isn’t likely to slow
down in the near future. “People are no longer defaulting simply
because of a change in the payment structure of their loan. They are
defaulting because of lost jobs or reduced hours or pay,” said a
Florida foreclosure task force report released in September. Michael
Barr, assistant secretary for financial institutions at the Treasury
Department, said last month that more than six million families could
lose their homes over the next three years. [more]

The Treasury Department will match $1.94 billion in investments from BlackRock, Willington Management and AllianceBernstein as part of the Public Private Investment Program, in which the government plans to partner with private firms to purchase toxic real estate assets. Yesterday’s announcement comes on the heels of the commitment of $1.13 billion by two other firms last week, which, combined with the debt financing promised by the Treasury, brings the purchasing power of the five funds to $12.27 billion.

Some of the money that the Obama administration is spending on the Home
Affordable Modification Program, aimed at homeowners facing
foreclosure, is benefitting corrupt mortgage servicers, an Associated
Press investigation found. Under the program, if a borrower who
received a mortgage modification makes payments on time for three
months, the mortgage servicing company that modified the loan may
receive up to $5,500 for each successful modification. In order to
receive a larger payoff, some companies have turned to illegal
practices. Of the 38 servicers the government is paying to help
distressed homeowners, at least 30 face lawsuits from homeowners and
advocates claiming they charged illegally high fees; 14 have been
accused of misleading customers before the program began; and three
have settled federal predatory collection allegations by pledging to
correct their behavior. The Treasury Department said it has no choice
but to work with all servicers — refusing to work with a
non-reputable firm would deprive homeowners whose mortgages came from
that servicer from getting modifications, said Treasury spokesperson
Jenni Engebretsen. [more]

Federal officials at the Treasury Department are considering a plan
that would allow borrowers who are behind on mortgage payments to avoid
eviction by renting their homes instead. Under the plan proposed by
economist Dean Baker of the Center for Economic Policy Research, a
bankruptcy judge would help determine a fair rent for the property.
Banks would be able to sell the occupied homes, but the lease would
remain in effect even if the ownership changed. Officials are still
figuring out how to replace a loan with a rental lease without
disrupting the overall mortgage market. Two possible methods that are
being considered by government officials are paying cash to
mortgage-service companies to take part in the new program or selling
homes to a third party that would write rental agreements. [more]