We’ve been hearing a lot lately about President Obama’s plan to assist homeowners in an effort to stabilize the current housing market.  There seems to be some recognition on the part of banks and the Federal Government should step in and take an active role in fixing a problem that their policies and practices helped create, and we think that’s a good thing.  If you’re a homeowner who is underwater in your mortgage, behind on your payment, or hoping to refinance, this could be welcome news for you.

In an effort to keep Sacramento homeowners well informed, we’ve looked at some of the key aspects of the President’s plan and how it might make a difference for your situation:

• This would be a broad-based refinancing opportunity, providing borrowers who are current on their payments to still take advantage of historically low interest rates and secure a better, more stable fixed rate loan.

• The proposal also includes what’s being called a “Homeowners Bill of Rights”.  This is a way of making sure that lenders do not have an unfair advantage by simplifying the disclosures to the borrower.  The thinking is that when consumers better understand the terms and potential risks, that there will be less chance for abuse in the system.  You’ll have full knowledge of fees, and penalties, as well as guidelines to prevent conflict of interest, support to keep responsible families out of foreclosure, and protection against predatory lending practices.

• There would also be a full year of forbearance for borrowers who are unemployed and actively looking for work.  A forbearance simply means that the bank takes the missed payments and tacks them on to the end of the loan, with interest.  Many major banks are already providing 12 months of forbearance to unemployed borrowers.

• In an effort to reduce foreclosures and rehabilitate neighborhoods, the administration is proposing to expand eligibility for HAMP (Home Affordable Modification Program).  This part of the plan would increase incentives to banks for modifications that help borrowers rebuild equity.  “Project Rebuild” is designed to put people back to work by rehabilitating neighborhoods that have been affected by the economic downturn.

This plan so far has broad-based support, including the California Association of Realtors and the National Association of Realtors.  You can view the full details of this plan on the White House website.

There’s great news to announce this month for California homeowners considering a short sale.  New legislation, SB 458, was just signed into law by Governor Jerry Brown, which prohibits banks and other lending institutions from pursuing borrowers for any losses incurred as a result of doing a short sale.  So, as of July 15th, if the bank provides approval in writing for your short sale they are effectively forgiving that portion of the debt that is lost in the transaction.  No more deficiency judgments, no hassles, just a clean slate.

This is very big news for a number of reasons.  Many potential sellers have been sitting on the sideline because of their concern over whether the deficiency would follow them long after the sale and lead to additional financial hardship and credit issues.  With a relatively slow moving market, this could open the door for more buying and selling to take place, giving the Sacramento real estate market the shot in the arm we’ve been waiting for.

For those who have been considering a short sale, one of your major potential setbacks has been taken off the table.  I know some people still have other concerns, but when facing a potential foreclosure, we believe the short sale option is the lifeline that many homeowners are looking for.

Just look at the benefits:

1. Minimal credit damage vs. a foreclosure
2. The ability to be back in the home buying market usually within one or two years
3. The dignity that goes with selling your home as opposed to “losing” your home
4. No out of pocket costs associated with selling or closing
5. Getting out from underneath a huge burden of debt

If you’ve recently been turned down for a loan modification, are suffering a financial hardship and are underwater on your mortgage, you may want to explore the short sale option.   Now with the law on your side it pretty much eliminates any downside risk, and we think that’s a very good thing.