The US Treasury Secretary, Tim Geithner, recently unviled the Obama administration’s plan to help get lenders to grant more short sales. The main thrust of the proposal calls for the government to give banks $1000 for each short sale they grant and $1500 to the home owner to aid with relocation costs. Like many of the other plans advanced by the federal government to help distressed homeowners this one seems long on promises and very short on details.

I’ve completed many short sale transactions in San Diego. I really don’t see how the extra $1000 is going to get the lender to get off the block any faster and make the sale happen. The layers of bearaucracy at one of these lending institutions makes the federal government look organized. Maybe the government should use the $1000 to pay for termite repairs the lender refuses to cover, so the buyer doesn’t walk away from the deal after six months of waiting.

It takes a committee of people just to get a short sale file ready to submit to an investor. A short sale file at Bank of America passes through 3 negotiators hands before it can close. The 1st negotiator makes sure everything is in the file, the 2nd submits the file to the investor (who is the only one who can really approve it) and the third facilitates the rest of the transaction. It takes at least six weeks for the file even to make it to the phase one negotiator. I don’t think throwing a $1000 at that mess is going to make it go any more smoothly.

I certainly appreciate the government is trying to help, but if they are going to help, they need to address the whole problem. I’ve seen some recent approval letters from B of A which try to force the borrower to sign on for years of collection activities, post short sale. These tactics are only going to prolong the misery by creating hundreds of thousands of new bankruptcy filings over the next several years.

Let’s figure out a way to really attack the heart of the problem. I’m not really for big government, but since they are already throwing billions at this problem, why not spend it wisely. Perhaps they should ask some every day Realtors in San Diego or elsewhere what the real problems with short sales are. A real on-the-ground understanding of the problem is the only way to solve it.